<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997
REGISTRATION NO. 333-37159
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IOMED, INC.
(NAME OF ISSUER IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
UTAH 2834 87-0441272
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3385 WEST 1820 SOUTH
SALT LAKE CITY, UTAH 84104
(801) 975-1191
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND
PRINCIPAL PLACE OF BUSINESS)
------------------------
NED M. WEINSHENKER, PH.D.
CHIEF EXECUTIVE OFFICER
3385 WEST 1820 SOUTH
SALT LAKE CITY, UTAH 84104
(801) 975-1191
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
J. GORDON HANSEN, ESQ. RODD M. SCHREIBER, ESQ.
ROBERT C. DELAHUNTY, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
SCOTT R. CARPENTER, ESQ. 333 WEST WACKER DRIVE
PARSONS BEHLE & LATIMER CHICAGO, ILLINOIS 60606
201 SOUTH MAIN STREET, SUITE (312) 407-0700
1800
SALT LAKE CITY, UTAH 84111
(801) 532-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH A DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997
- --------------------------------------------------------------------------------
1,700,000 COMMON SHARES
LOGO
All of the 1,700,000 Common Shares offered hereby are being sold by IOMED,
Inc. (the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Company's Common Shares. It is currently estimated that
the initial public offering price will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to list
the Common Shares for quotation on the Nasdaq National Market under the symbol
"IOMD."
Elan Corporation, plc, through certain affiliates, has agreed to purchase
directly from the Company, in private placement transactions which will be
completed concurrently with the closing of the Offering, 833,333 Common Shares
(subject to adjustment under certain circumstances) for approximately $10.2
million and approximately $5.1 million of Common Shares at a price per share
equal to the initial public offering price hereunder. Simultaneously with such
purchases, the Company will repay $15.3 million in notes, including interest,
previously issued to Elan. See "Transactions Related to the Offering,"
"Business -- Collaborative Relationships and Licenses" and "Certain
Transactions."
------------------------
THE COMMON SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
===================================================================================================
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------
Per share $ $ $
- ---------------------------------------------------------------------------------------------------
Total(3) $ $ $
===================================================================================================
</TABLE>
(1) Excludes the issuance of warrants to the Representatives of the Underwriters
(the "Representatives") to purchase, after the first anniversary of the date
hereof, up to an aggregate of 170,000 Common Shares at an exercise price
equal to (i) 125% of the initial public offering price set forth above after
the first anniversary of the date of this Prospectus and (ii) 150% of the
initial public offering price set forth above after the third anniversary of
the date of this Prospectus. Holders of such warrants have been granted
certain registration rights under the Securities Act of 1933, as amended,
with respect to the securities issuable upon exercise of such warrants. In
addition, the Company has granted the Representatives a nonaccountable
expense allowance of $245,000. The Company has agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $917,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 255,000 Common Shares, on the same terms as set forth above,
solely to cover over-allotments, if any. If all such shares are purchased,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The Common Shares offered by the Underwriters are subject to prior sale,
receipt and acceptance by them and subject to the right of the Underwriters to
reject any order in whole or in part and certain other conditions. It is
expected that delivery of such Common Shares will be made by EVEREN Clearing
Corp. through the facilities of the Depository Trust Company, New York, New York
on or about , 1997.
EVEREN SECURITIES, INC.
HANIFEN, IMHOFF INC.
WEDBUSH MORGAN SECURITIES
<PAGE> 3
[INSIDE FRONT COVER]
[GRAPHICS DEPICTING THE COMPANY'S PRODUCTS.]
The "Prototype" device shown above has not been approved by the United States
Food and Drug Administration (the "FDA") or any other regulatory authority for
sale in the United States or elsewhere in the world. There can be no assurance
that this Prototype will be successfully developed by the Company or approved by
the FDA or any foreign regulatory authority on a timely basis, if ever. See
"Risk Factors -- Uncertainty of Government Regulation."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus, including information under "Risk Factors." Throughout this
Prospectus, except where the context otherwise requires, reference to the
"Company" means the Company and its subsidiaries. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual operating results may differ significantly from the results discussed in
these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE COMPANY
INTRODUCTION
IOMED, Inc. (the "Company") develops, manufactures and commercializes
controllable drug delivery systems using iontophoretic technology. Iontophoresis
is a non-invasive method of enhancing and controlling the transport of
water-soluble ionic drugs into and through the skin using a low level electrical
current. The Company's proprietary iontophoretic drug delivery systems allow
rapid onset and cessation of therapeutic action, as well as programmable dose
control. The systems enable caregivers to monitor and control the onset of drug
effectiveness and maintain, reduce or cease drug administration once a desired
therapeutic effect is observed. Additionally, the Company is developing systems
designed to permit patient control and selfadministration. The programming
feature also enables caregivers to customize dosing patterns to meet each
patient's specific needs. The flexibility of the Company's proprietary systems
provides therapeutic control not possible with many alternative drug delivery
methods, including oral tablets and capsules, injections, inhalants, and passive
transdermal patches. The Company's systems may also increase bioavailability,
safety and patient comfort.
BUSINESS STRATEGY
The Company's primary business goal is to establish its proprietary
iontophoretic drug delivery systems as a cost effective preferred means of
delivering a wide range of drugs. The Company's strategy for achieving this goal
includes (i) pursuing product development of drug delivery systems for
off-patent drugs with known safety and efficacy; (ii) entering into
collaborative relationships with pharmaceutical companies for the delivery of
new chemical entities and proprietary drugs; (iii) broadening the market
penetration and potential applications of the Company's existing delivery
systems; (iv) enhancing the Company's technology platform through internal
research and development; (v) pursuing new technology through in-licensing and
acquisitions; and (vi) retaining control of the manufacturing revenue stream.
COMPANY PRODUCTS
The Company currently markets two products, an iontophoretic system used to
deliver dexamethasone sodium phosphate ("Dexamethasone"), a corticosteriod used
in the treatment of acute local inflammation, and an iontophoretic system used
to deliver Iontocaine, a proprietary drug used for local dermal anesthesia. The
iontophoretic drug delivery systems the Company currently markets are comprised
of a reusable programmable dose controller which is used to direct the
electrical current to control drug dosing and a pair of proprietary disposable
electrodes, one containing the drug and one serving as a grounding electrode to
complete the electrical circuit through the skin. The drug delivery electrode
may be applied to the patient's skin at a local treatment site (such as for
joint or tendon soreness or to induce local dermal anesthesia), or at any
suitable site on the body for systemic drug delivery. When an electrical current
with the same positive or negative electric charge as the drug is applied to the
drug electrode, the drug is repelled from the electrode and into and through the
skin.
Dexamethasone. The Company's acute local inflammation product is a system
used principally by physical therapists and professional athletic trainers for
the delivery of Dexamethasone. Since it was
3
<PAGE> 5
introduced in 1979, the Company's product has been used in over 10 million
patient applications for the treatment of acute inflammatory conditions such as
tendonitis (e.g. tennis elbow, golfers elbow and achilles tendonitis), bursitis
and carpal tunnel syndrome. More than 8 million of these applications have
occurred since 1990, when the Company introduced its present family of gel
electrodes for use with its microprocessor controlled dose controller. The
product is currently marketed to the physical therapy market as a device, under
a 510(k) pre-market notification by the United States Food and Drug
Administration ("FDA"), for use in connection with delivering ions of soluble
salts or other drugs. Recently, the FDA determined that all future iontophoretic
drug delivery systems will be required to go through the New Drug Application
process with the specific drug that is to be delivered. In order to address the
new regulatory framework and to broaden the clinical basis for the treatment of
acute local inflammation using the Company's iontophoretic delivery system for
Dexamethasone, the Company has filed an Investigational New Drug application
with the FDA and has initiated clinical studies to establish formally the safety
and efficacy of its drug delivery system for Dexamethasone. If the clinical
trials are successful and the Company receives regulatory approval, the Company
believes it will be able to actively promote the iontophoretic delivery of
Dexamethasone to general and family practice physicians, orthopedists,
neurologists and sports and industrial medicine clinics. The Company believes
the ability to promote iontophoresis with Dexamethasone will enhance its ability
to establish its delivery system for Dexamethasone as a primary treatment option
for acute local inflammatory conditions.
Iontocaine. The Company's iontophoretic delivery system was approved by the
FDA in January 1996 for use in inducing local dermal anesthesia, and the Company
began marketing the product in early 1997. Iontocaine is the first drug with
labeling specifically for iontophoretic delivery. In addition, Iontocaine is
approved for use only with the Company's drug delivery systems. The Iontocaine
product provides needle-free, long lasting local dermal anesthesia up to six
times more rapidly and up to three times deeper than can be achieved using
topical anesthetic creams. The Company is initially marketing its Iontocaine
delivery system under the name Numby Stuff to pediatric hospitals in the United
States for use in connection with inducing local dermal anesthesia prior to
pediatric intravenous starts, blood draws, lumbar punctures and other similar
invasive procedures. At the Company's request, Numby Stuff was recently reviewed
by the new product review committee of the Alliance of Children's Hospitals
("ACH"), a consortium of 36 free standing children's hospitals in the United
States. Following the review, the Company acquired a right from ACH to use the
ACH Seal of Acceptance in connection with the commercialization of Numby Stuff.
In order to use the Seal of Acceptance to promote Numby Stuff, the Company was
required to make royalty payments to ACH. The Company satisfied ACH's royalty
requirement by issuing ACH warrants to acquire 44,791 Common Shares. In
addition, in connection with obtaining the right to use the ACH Seal of
Acceptance, the Company sold an ACH affiliate 37,202 Common Shares. The Company
plans to extend its marketing efforts for Iontocaine to include pediatric
clinics, non-pediatric hospitals, and office based physician practices for use
in connection with numerous therapeutic applications, including blood draws and
minor dermatological procedures. The Company is also evaluating the use of
Iontocaine in connection with gynecological procedures requiring dermal or
mucosal anesthesia. The use of Iontocaine for mucosal applications will require
additional FDA approval.
Many pharmaceutical compounds, including peptides and oligonucleotides,
have physical and chemical properties consistent with delivery by iontophoresis.
Therefore, the Company believes its technology may be applicable to a number of
other compounds and therapeutic applications. The Company is also independently
developing a number of iontophoretic drug delivery systems for other
indications, including conscious sedation, tocolysis (the remission of pre-term
labor), and postoperative and chronic pain control.
COLLABORATIVE RELATIONSHIPS
Novartis. In July 1995, the Company entered into a research and development
agreement with Ciba Pharmaceuticals Corporation, a predecessor to Novartis
Pharmaceuticals Corporation ("Novartis"), an affiliate of Novartis Pharma, A.G.,
the international pharmaceutical company formed as a result of the merger of
Ciba-Geigy Corporation and Sandoz Corporation in 1997. The collaboration was
formed to evaluate the development of iontophoretic drug delivery systems for a
number of Novartis compounds for use in several
4
<PAGE> 6
therapeutic applications. The joint effort is currently directed toward the
development of a delivery system for a compound to treat osteoporosis. The
Company believes this system could enter Phase I clinical trials during 1998.
In connection with the collaboration, Novartis purchased a 20% equity
interest in Dermion, Inc. ("Dermion"), a subsidiary of the Company that conducts
most of its research and development activities. The Company, Dermion and
Novartis amended the terms of their collaborative arrangement. Under the terms
of the amendment, effective November 1, 1997, Novartis exchanged its interest in
Dermion for 238,541 Common Shares of the Company and warrants to acquire under
certain conditions and through November 1, 2002, an additional 18,750 Common
Shares at an exercise price of $21.60 per share. As a result, Dermion became a
wholly-owned subsidiary of the Company. Pursuant to the agreements, Novartis is
required to pay for research costs under the program and to make milestone
payments upon the successful completion of certain later stage development
objectives. In addition, the Company granted Novartis a perpetual,
non-exclusive, royalty bearing license to the Company's iontophoretic technology
as well as certain rights with respect to future technology developed or
acquired by the Company.
Elan. In March 1997, the Company entered into agreements with Elan
Corporation, plc and certain of its affiliates (collectively, "Elan"), an
international developer and manufacturer of advanced drug delivery technologies.
The agreements provide the Company with exclusive, worldwide licenses to certain
of Elan's iontophoretic drug delivery technology, including over 250 issued and
47 pending United States and foreign patents, as well as a significant body of
know-how and clinical study results. The Company believes the Elan technology
significantly expands its iontophoretic technology platform, enhances its
competitive position and better positions the Company to shorten the development
horizon of its iontophoretic drug delivery systems, including the miniaturized,
integrated, wearable systems currently under development by the Company. The
Company acquired the Elan technology by issuing two promissory notes, a $10.0
million note and a $5.0 million note (the "Elan Notes"). Under the agreement
with Elan, Elan will purchase directly from the Company, in private placement
transactions which will be completed concurrently with the closing of the
Offering, 833,333 Common Shares (subject to adjustment under certain
circumstances) for approximately $10.2 million and approximately $5.1 million of
Common Shares at a price per share equal to the initial public offering price
hereunder (425,000 shares assuming an initial public offering price of $12.00
per share) (collectively, the "Elan Shares"). Simultaneously with such
purchases, the Company will repay the Elan Notes, including interest thereon.
The Company was incorporated in Utah in 1974 as Motion Control, Inc. In
1987, the Company merged with JMW Acquisition Corporation, and the name of the
merged entity was changed to IOMED, Inc. All references to the Company include
the Company's predecessor entities, as well as Dermion. The Company's principal
executive offices are located at 3385 West 1820 South, Salt Lake City, Utah
84104, and its telephone number is (801) 975-1191.
IOMED, Dermion, Phoresor, Iontocaine, Anestrode, TransQ, Numby Stuff and
the Company's logo are registered trademarks of the Company or are marks in
which the Company claims trademark rights. This Prospectus also includes
references to trademarks of companies other than the Company.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered.................... 1,700,000 shares
Common Shares to be outstanding after the
Offering............................... 6,360,204 shares(1)
Use of Proceeds.......................... For research and development; preclinical and
clinical studies; expansion of sales and marketing
capabilities; consolidation and equipping of Company
facilities; and working capital and other general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol... IOMD
</TABLE>
- ---------------
(1) Based on Common Shares outstanding as of November 1, 1997. Includes the sale
of the Elan Shares (1,258,333 Common Shares, assuming an initial public
offering price of $12.00 per share) concurrently with the closing of the
Offering and the mandatory conversion of 28,800 Series C Preferred Shares
into 28,800 Common Shares in connection with the closing of the Offering.
Excludes (i) 339,512 Common Shares issuable upon exercise of options granted
pursuant to the Company's stock option plans, at a weighted average exercise
price of $4.80 per share; (ii) 312,500 Common Shares reserved for future
grants of options or awards under the Company's stock option plans; (iii)
170,000 Common Shares issuable upon exercise of warrants to be issued to the
Representatives at an initial exercise price of $15.00 per share, assuming
an initial offering price of $12.00 per share (the "Representatives'
Warrants"); and (iv) 169,791 Common Shares issuable upon exercise of other
outstanding warrants, at a weighted average exercise price of $18.04 per
share. The number of Elan Shares is dependent upon the initial public
offering price. See "Transactions Related to the Offering,"
"Management -- Employee Benefit Plans -- Stock Option Plans," "Certain
Transactions," "Description of Capital Shares," and "Underwriting."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ---------- ------------ ---------- ----------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Total revenues........................... $ 6,964 $ 9,238 $ 9,283 $ 2,462 $ 2,500
Operating costs and expenses:
Cost of products sold.................. 3,369 3,138 3,338 821 893
Research and development............... 1,467 1,099 1,488 391 375
Selling, general and administrative.... 3,338 3,283 3,501 769 1,061
Non-recurring charges.................. -- 430(1) 15,059(2) -- --
----------- ---------- ------------ ---------- ----------
Total costs and expenses........ 8,174 7,950 23,386 1,981 2,329
----------- ---------- ------------ ---------- ----------
Income (loss) from operations............ (1,210) 1,288 (14,103) 481 171
Interest expense......................... 32 9 242 1 287
Interest income and other, net........... 120 167 291 58 91
Minority interest........................ -- (17) 23 44 11
Income tax expense (benefit)............. (173) (79) 5 20 --
----------- ---------- ------------ ---------- ----------
Income (loss) from continuing
operations............................. (949) 1,542 (14,082) 474 (36)
Income from discontinued operations, net
of income taxes(3)..................... 290 201 44 (7) --
----------- ---------- ------------ ---------- ----------
Net income (loss)........................ $ (659) $ 1,743 $ (14,038) $ 467 $ (36)
=========== ========== ============ ========== ==========
PER COMMON SHARE DATA(4):
Income (loss) from continuing
operations............................. $ (0.46) $ 0.48 $ (4.48) $ 0.14 $ (0.01)
Income from discontinued operations...... 0.14 0.06 0.01 -- --
----------- ---------- ------------ ---------- ----------
Net income (loss)........................ $ (0.32) $ 0.54 $ (4.47) $ 0.14 $ (0.01)
=========== ========== ============ ========== ==========
Shares used in computing per share
amounts................................ 2,090 3,222 3,140 3,282 3,150
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 5,910 $ 23,965
Total assets................................................................ 8,469 26,524
Long-term obligations, including current portion............................ 16,247(6) --
Accumulated deficit......................................................... (21,574) (21,574)
Shareholders' equity (deficit).............................................. (9,527) 25,684
</TABLE>
- ---------------
(1) Costs incurred in connection with the settlement of certain trade dress
litigation. See Note 3 of the Notes to Consolidated Financial Statements.
(2) Reflects the write-off of certain in-process research and development
(including related transaction costs) purchased from Elan. See Note 3 of the
Notes to Consolidated Financial Statements.
(3) Discontinued operations include the operating results (exclusive of any
corporate allocations and net of applicable income taxes) of the Company's
prosthetics division, which was sold in December 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) See Note 1 of the Notes to Consolidated Financial Statements for information
concerning the computation of per share amounts.
(5) Adjusted to reflect the following: (i) the issuance and sale of 1,700,000
Common Shares offered hereby, at an assumed initial public offering price of
$12.00 per share and the receipt of the net proceeds therefrom; (ii) the
sale of the Elan Shares to Elan and the simultaneous repayment of the Elan
Notes, including interest thereon, concurrently with the closing of the
Offering; (iii) the mandatory conversion of the outstanding Series C
Preferred Shares into 28,800 Common Shares concurrently with the closing of
the Offering; and (iv) the exchange of Novartis' 20% equity interest in
Dermion for 238,541 Common Shares, which was effected November 1, 1997. See
"Transactions Related to the Offering" and "Use of Proceeds."
(6) Reflects (i) $15,527,000 in notes, including accrued interest, issued to
Elan; and (ii) $720,000 in redeemable, convertible preferred shares. See
"Business -- Collaborative Relationships and Licenses."
Unless otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters over-allotment option; (ii) reflects the
1-for-4.8 reverse split of the Company's Common Shares effective November 7,
1997; and (iii) reflects the mandatory conversion of the outstanding Series C
Preferred Shares into 28,800 Common Shares concurrently with the closing of the
Offering.
7
<PAGE> 9
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE
PURCHASING THE COMMON SHARES OFFERED HEREBY. PROSPECTIVE INVESTORS ARE CAUTIONED
THAT THE STATEMENTS IN THIS SECTION THAT ARE NOT DESCRIPTIONS OF HISTORICAL
FACTS MAY BE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED DUE TO A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THIS
SECTION, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
CONTINUING OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The
Company earned modest profits in each of the fiscal years 1988 through 1990, and
experienced losses from operations in fiscal years 1991 through 1995, due
primarily to increased investment in product development, clinical studies, and
increased sales and marketing activity. The Company again earned a profit from
operations in fiscal year 1996, but experienced a substantial loss from
operations in fiscal year 1997 primarily due to the write-off of purchased
in-process research and development. The Company had an accumulated deficit of
$21.6 million as of September 30, 1997. The Company intends to substantially
expand its research and development and marketing efforts in the near future
and, therefore, does not anticipate being profitable in the near term. The
Company's ability to achieve and sustain profitability will depend on its
ability to achieve market acceptance, and successfully expand sales of its
existing products, as well as successfully complete the development of, receive
regulatory approvals for, and successfully manufacture and market, its products
under development, as to which there can be no assurance. In addition, the
Company may be required to give away or substantially discount its current or
future products in order to stimulate demand, either of which events could have
a material adverse effect on the Company's business, financial condition and
results of operations. The success of the Company's current products and
products under development may also depend on the timing of new product
introductions by the Company relative to its competitors and other factors. As a
result of the foregoing, no assurance can be given that the Company will become
profitable on a sustained basis, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNCERTAINTY OF MARKET ACCEPTANCE AND LIMITED MARKET PENETRATION. The
Company has generated only limited revenues, primarily from sales to physical
therapists of its drug delivery system for dexamethasone sodium phosphate
("Dexamethasone") for the treatment of acute local inflammation. The Company
began marketing Iontocaine, its proprietary local dermal anesthetic product, in
January 1997 and has generated only limited revenues from that product to date.
For the Company to be successful, its products will need to achieve broad market
acceptance by the medical profession. The Company's products use a method of
active transdermal drug delivery which, to date, has not gained significant
market penetration, and no assurance can be given that the Company's current or
future products will ever achieve broad market acceptance. Medical professionals
will not use or prescribe the Company's products unless they determine they are
a preferable alternative to products currently available on the market. The
Company believes recommendations and endorsements by influential medical
professionals may be essential for market acceptance of its products, but there
can be no assurance the Company will be able to obtain any such recommendations
or endorsements. In addition, the adoption of new pharmaceutical products is
greatly influenced by health care administrators, inclusion in hospital
formularies and reimbursement by third party payors. No assurance can be given
that health care administrators, hospitals or third party payors will accept the
Company's products on a large scale or on a timely basis, if at all, or that the
Company will be able to obtain labeling for its products which facilitate their
market acceptance or use. In addition, unanticipated side effects or unfavorable
publicity concerning any of the Company's products, or any other product
incorporating technology similar to that used in the Company's products, could
have an adverse effect on the Company's ability to commercialize its products or
achieve market acceptance. The occurrence of any such event could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Products and Products Under Development"
and "Business -- Sales and Distribution."
UNCERTAINTIES RELATED TO PRODUCT DEVELOPMENT; CLINICAL TRIALS. Two of the
primary components of the Company's business strategy are to develop and
commercialize iontophoretic drug delivery systems for new and existing drugs and
to develop additional applications for its existing products. The Company will
be
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<PAGE> 10
required to undertake time-consuming and costly development activities and seek
regulatory approval for these new products and applications. Product revenues
may not be realized from the sale of any such products for several years, if at
all. The Company can give no assurance that its product development efforts,
either alone or in collaboration with other parties, will ever be successfully
completed, that it can obtain required regulatory approvals of its products,
that products under development can be manufactured at acceptable cost or with
appropriate quality, or that its products can be marketed successfully.
Before seeking regulatory approval for the commercial sale of its products,
the Company must demonstrate through preclinical studies and clinical trials
that those products are safe and effective for use in the target indications.
The rate of completion of the Company's clinical trials is dependent upon, among
other things, the rate of patient enrollment. Patient enrollment is a function
of many factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the eligibility
criteria for the study. There can be no assurance the Company will be able to
obtain the patient enrollment it needs to complete its clinical trials in a
timely manner, if at all. The results the Company obtains from preclinical
studies and early clinical trials may not be indicative of results it will
obtain in large-scale testing, and there can be no assurance the Company's
clinical trials will demonstrate sufficient safety and efficacy for it to obtain
the requisite regulatory approvals, or that those clinical trials will result in
additional marketable products. Clinical trials are also often conducted with
patients having advanced stages of disease. During the course of treatment,
these patients can die, suffer undesired side effects or suffer other adverse
medical effects for reasons that may not be related to the pharmaceutical agent
or drug delivery system being tested, any of which can have an adverse effect on
clinical trial results. A number of companies in the pharmaceutical industry
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials, as a result of such adverse effects. The
use of any product the Company develops may produce undesirable side effects
that could result in the interruption, delay or suspension of clinical trials,
or the failure to obtain United States Food and Drug Administration ("FDA") or
other regulatory approval for targeted indications. If the Company's products
under development are not shown to be safe and effective in clinical trials, the
resulting delays in developing other compounds and conducting related
preclinical testing and clinical trials, as well as the need for additional
financing to complete such testing and trials, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Products and Products Under Development,"
"Business -- Manufacturing" and "Business -- Government Regulation."
RELIANCE ON COLLABORATIVE PARTNERS. The Company's strategy is to enter into
arrangements with corporate partners, licensors, licensees and other parties for
the development, clinical testing, manufacture, marketing or commercialization
of certain of its products or products in development. The Company currently has
a collaborative arrangement with Novartis Pharmaceuticals Corporation
("Novartis"), an affiliate of Novartis Pharma A.G., the international
pharmaceutical company formed as a result of the merger of Ciba-Geigy
Corporation and Sandoz Corporation in 1997. The collaboration was formed to
evaluate the potential for effective delivery by iontophoresis of several
Novartis compounds covering a range of therapeutic applications.
Collaborative partners in the development of medical drugs and devices
generally have the right to pursue parallel development of other products which
may compete with the products of the other collaborative partner, and to
terminate their agreements without significant penalty under certain conditions.
Any parallel development by a collaborative partner of the Company of alternate
drug delivery systems, development by a partner rather than by the Company of
components of the delivery system, preclusion from entering into competitive
arrangements, failure to obtain timely regulatory approvals, premature
termination of an agreement, or a decision by a collaborative partner not to
devote sufficient resources to the development and commercialization of the
Company's products could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company's success may depend upon, among other things, the skills,
experience and efforts of the Company's collaborative partners' employees who
are responsible for the collaborative project, such partners' commitment to the
arrangement, and the financial condition of such partners, all of which are
beyond the control of the Company. If one or more of the Company's collaborative
partners defaulted on their obligations
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<PAGE> 11
under their collaborative agreements, the Company could be forced to engage in
litigation to enforce those obligations (which could be time consuming and
costly) or seek to enter into agreements with other parties upon similar terms.
There can be no assurance the Company will be able to enforce the terms of its
collaborative arrangements through litigation, and there can be no assurance
that, if forced to terminate its current collaborative arrangements, the Company
would be able to enter into other contractual arrangements with other parties on
terms which would not be materially different from the terms of its current
collaborative arrangements.
A significant portion of the Company's research and development resources
has been devoted to its contractual research and development efforts with
Novartis. Since 1995, Novartis has funded a substantial portion of the total
research and development costs of the Company. The amount and timing of
resources to be devoted by Novartis in accomplishing the objectives of its
collaborative development effort with the Company are not within the control of
the Company, and there can be no assurance that Novartis will continue its
collaborative development with the Company beyond the current term of the
agreement, which has been extended through December 31, 1998. Either party can
terminate the collaboration upon six months prior written notice. There also can
be no assurance that Novartis will perform its obligations as expected or that
it will not pursue other existing or alternative technologies in preference to
products it is developing with the Company or that it will not terminate the
collaboration prior to its expiration. In addition, in connection with this
collaboration, the Company granted Novartis a perpetual, non-exclusive, royalty
bearing license to the Company's iontophoretic technology which will survive the
termination of the collaboration. The license to Novartis, though non-exclusive,
may make it more difficult for the Company to enter into new collaborations,
which could have a material adverse effect on the Company. Further, other than
in collaboration with Novartis, the Company has agreed that during the term of
the agreement and for a period of up to two years thereafter, the Company will
not develop any product in certain Novartis fields, as defined in the agreement,
without Novartis' consent. There can be no assurance that Novartis will not
terminate its agreement with the Company and independently develop products
using the licensed technology, including products which may compete directly
with those currently marketed or under development by the Company. If Novartis
terminates its agreement with the Company, the Company's business, financial
condition and results of operations could be materially and adversely affected.
In connection with the establishment of the Novartis collaboration, the
Company formed Dermion, Inc. ("Dermion") to perform the Company's research and
development activities and Novartis acquired a 20% equity interest in Dermion.
The Company, Dermion and Novartis recently amended the terms of their
relationships. Under these amendments (the "1997 Amendments"), effective
November 1, 1997, Novartis exchanged its 20% equity interest in Dermion for
238,541 Common Shares and warrants to acquire up to an additional 18,750 Common
Shares at an exercise price of $21.60 per share. Novartis can currently exercise
one-third of the warrants, and its right to exercise the remaining warrants will
vest, as to an additional one-third in each instance, at the time it agrees, if
ever, to provide research and development funding under the parties' agreements
for each of 1999 and 2000. In addition, under the agreement with Novartis, the
Company is restricted in its ability to sell or otherwise dispose of the assets
or control of Dermion through March 1998, and Novartis has a right of first
offer to acquire either the Company's interest in Dermion or Dermion's business
and assets in the event of any proposed change of control of Dermion during the
remainder of the term of the Novartis research and development agreement and for
one year thereafter.
The Company has also agreed that, during the term of the agreement with
Novartis and for a period of five years thereafter, the Company will negotiate
in good faith to license to Novartis rights to any iontophoretic drug delivery
technologies developed or acquired by the Company but which are not covered
under the existing license agreements (the "Second Generation Technology").
Further the Company has agreed to negotiate such additional licenses prior to
entering into any agreement to license or otherwise transfer any rights to such
Second Generation Technology to a third party. Under the 1997 Amendments, the
parties agreed to treat the technology acquired by the Company from Elan
Corporation, plc and its affiliates ("Elan") as Second Generation Technology.
Accordingly, the Company intends to negotiate with Novartis to license such
technology to Novartis prior to initiating efforts to negotiate any rights to
such technology with any third party. See "Business -- Collaborative
Relationships and Licenses."
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Although the Company anticipates it will enter into additional
collaborative arrangements with other parties in the future, there can be no
assurance the Company will be able to negotiate any such additional
collaborative arrangements on terms which are acceptable to the Company, if at
all. In addition, the technology license and rights to future licenses granted
to Novartis may make it more difficult for the Company to find collaborative
partners for its product development programs. To the extent the Company chooses
not, or is not able, to establish such collaborations, it could experience
significantly increased business risk and capital requirements in the
development, clinical testing, manufacturing, marketing and commercialization of
its products. The Company could also encounter significant delays in introducing
products into markets or find that the development, manufacture or sale of
proposed products in such markets is adversely affected by the absence of those
collaborative arrangements.
Under an agreement with a prior collaborative partner, Laboratoires
Fournier S.C.A. ("Laboratoires Fournier"), the Company has agreed, among other
things, not to pursue the development of a fentanyl-based iontophoretic drug
delivery system for chronic pain or sedation, or a hydromorphone-based
iontophoretic drug delivery system for the treatment of acute post-operative
pain, until the second quarter of calendar year 1998. See "Business -- Products
and Products Under Development."
INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE. The drug delivery,
pharmaceutical and biotechnology industries are highly competitive and rapidly
evolving, with significant developments expected to continue at a rapid pace.
The first pharmaceutical product to reach the market in a therapeutic area or
using a certain drug delivery technology generally obtains and maintains a
significant market share relative to later entrants to the market. The Company's
success will depend on its ability to maintain a competitive position and
develop new products and technologies for efficient and cost effective drug
delivery. The Company's products will compete with other formulations of drugs
and with other drug delivery systems, including oral dosage forms, infusions,
injections, inhalants, and transmucosal, transnasal and transdermal products.
There can be no assurance any of the Company's products will have advantages
that will be significant enough to cause medical professionals to prefer or even
use them. New drugs or further development of alternative drug delivery methods
may provide greater therapeutic benefits for a specific drug or indication, or
may offer comparable performance at lower cost, than that offered by the
Company's iontophoretic drug delivery systems, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Many competitors, including public and private corporations, academic
institutions, governmental agencies and other public and private research
organizations, are involved in the development of drug delivery systems,
including the development of competing iontophoretic, similar
electrotransport-related or other drug delivery technologies. Many of these
competitors have substantially greater financial, technical, research and other
resources, are more experienced in research and development, manufacturing,
pre-clinical and clinical testing, and obtaining regulatory approvals, and are
larger, more established and have substantially larger marketing and service
organizations than the Company. In addition, these competitors may offer broader
product lines than the Company, have greater name recognition than the Company,
and offer discounts as a competitive tactic. Accordingly, the Company's
competitors may succeed in developing competing technologies, and obtaining FDA
approval or gaining market share for products, more rapidly than the Company.
Many of these competitors currently have drug delivery products that are
approved or in development. There can be no assurance the Company's competitors
will not succeed in developing or marketing products that are more effective or
commercially attractive than the Company's current or future products, or that
would render the Company's products obsolete or noncompetitive. There can also
be no assurance the Company will have the financial resources, technical or
management expertise or manufacturing or support capability to compete in the
future. See "Business -- Competition."
The Company has licensed certain rights to its iontophoretic drug delivery
technologies to other parties, including Alza Corporation ("Alza"), Laboratoires
Fournier and Novartis, that may become or are direct competitors of the Company.
These companies could compete with the Company for contracts with the Company's
collaborative partners and could also develop iontophoretic drug delivery
systems that will compete directly with many of those currently marketed or
being developed by the Company. See "Business -- Collaborative Relationships and
Licenses."
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RELIANCE ON THIRD PARTY DISTRIBUTION; LIMITED SALES AND MARKETING
EXPERTISE. The Company presently markets its drug delivery systems for the
treatment of acute local inflammation primarily to physical therapists through a
nationwide system of dealers. The Company intends to market its local dermal
anesthesia products in the United States hospital market through sales personnel
who work directly for the Company, and anticipates that it will also use a third
party or collaborative partner to market its current and future products. See
"Business -- Sales and Distribution."
The majority of the dealers the Company uses in the distribution of its
drug delivery systems for acute local inflammation are principally involved in
the distribution of electrotherapy equipment and other rehabilitation related
products to physical therapists and related physician specialists. The Company's
product does not represent a primary source of revenue for many of those
dealers. As a result, there can be no assurance those dealers will invest
adequate resources in the sale and promotion of the Company's products, sell
other products developed by the Company or even continue to sell the Company's
products.
In cases where the Company intends to market its products using direct
sales personnel, such as with its drug delivery system for the inducement of
local dermal anesthesia, it will need to hire, train and supervise those
personnel. The Company has limited experience in marketing and sales, and only
recently began to recruit a marketing staff and sales force. The Company will
need to expend additional funds and management resources to assemble, train and
oversee a marketing and sales staff. There can be no assurance the Company can
successfully recruit, hire or retain personnel, nor can there can be any
assurance the Company will be able to maintain its relationships with the
marketing, sales and distribution resources it currently employs. There can also
be no assurance that the cost of establishing and maintaining a sales and
marketing staff will be justifiable in light of product revenues. If the
Company's marketing resources fail to perform in accordance with the Company's
expectations, the Company may be required to obtain or develop alternate
marketing, sales and distribution capabilities or seek other methods of
distributing its products. There can be no assurance the Company would be able
to do so or that the Company's sales and marketing efforts will be successful.
See "Business -- Sales and Distribution."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's ability to
commercialize many of the products it has under development will depend, in
part, on its or its licensors' ability, both in the United States and in other
countries, to obtain patents, enforce those patents, preserve trade secrets and
operate without infringing on the proprietary rights of third parties. As of
October 1, 1997, the Company owned or had rights to 60 issued United States
patents, 15 pending United States patents, 245 issued foreign patents and 47
pending foreign patents.
The patent positions of drug delivery, pharmaceutical and biotechnology
companies are highly uncertain and involve complex legal and factual questions.
There can be no assurance the patents currently owned and licensed by the
Company, or any future patents, will prevent other companies from developing
similar or therapeutically equivalent products, or that other companies will not
be issued patents that may prevent the sale of Company products or require
licensing and the payment of significant fees or royalties by the Company.
Furthermore, there can be no assurance any of the Company's products or methods
will be patentable, will not infringe upon the patents of third parties, or that
the Company's patents or future patents will give the Company an exclusive
position in the subject matter claimed by those patents. The Company may be
unable to avoid infringement of third party patents and may have to obtain
licenses, defend infringement actions or challenge the validity of those patents
in court. There can be no assurance a license will be available to the Company,
if at all, on terms and conditions acceptable to the Company, or that the
Company will prevail in any patent litigation. Patent litigation is costly and
time consuming, and there can be no assurance the Company will have or will
devote sufficient resources to pursue such litigation. If the Company does not
obtain a license under such patents, is found liable for infringement or is not
able to have such patents declared invalid, the Company may be liable for
significant monetary damages, may encounter significant delays in bringing
products to market or may be precluded from participating in the manufacture,
use, or sale of products or methods of treatment protected by such patents.
There can be no assurance the pending patent applications licensed to or owned
by the Company will result in issued patents, patent protection will be secured
for any particular technology, any patents that have been or may be issued to
the Company or its
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licensors will be valid or enforceable or that the Company's patents will
provide meaningful protection to the Company.
The Company also relies on trade secrets and other unpatented proprietary
information in its product development activities. To the extent the Company
relies on confidential information to maintain its competitive position, there
can be no assurance other parties may not independently develop the same or
similar information. The Company seeks to protect trade secrets and proprietary
knowledge in part through confidentiality agreements with its employees,
consultants, advisors and collaborators. These agreements may not effectively
prevent disclosure of the Company's confidential information and may not provide
the Company with an adequate remedy in the event of unauthorized disclosure of
such information. If the Company's employees, scientific consultants or
collaborators develop inventions or processes independently that may be
applicable to the Company's products under development, disputes may arise about
ownership of proprietary rights to those inventions and processes. Those
inventions and processes will not necessarily become the Company's property, but
may remain the property of those persons or their employers. Protracted and
costly litigation could be necessary to enforce and determine the scope of the
Company's proprietary rights. The Company's failure to obtain or maintain patent
and trade secret protection, for any reason, could have a material adverse
effect on the Company's business, financial position and results of operations.
The Company may engage in collaborations, sponsored research agreements,
and other arrangements with academic researchers and institutions that have
received or may receive funding from United States government agencies. As a
result of these arrangements, the United States government or other parties may
have rights in certain inventions developed during the course of the performance
of such collaborations and agreements as required by law or such agreements.
Several legislative bills affecting patent rights have been introduced in the
United States Congress. These bills address various aspects of patent law,
including publication, patent term, re-examination, subject matter and
enforceability. It is not certain whether any of these bills will be enacted
into law or what form such new laws may take. Accordingly, the effect of such
potential legislative changes on the Company's intellectual property is
uncertain. See "Business -- Patents and Proprietary Rights."
In August 1993, the United States Patent and Trademark Office ("PTO")
issued a patent to Alza covering the iontophoretic delivery of fentanyl. A
similar patent application in Europe has thus far been rejected, although the
Company believes Alza has appealed that rejection. The United States patent was
the subject of a reexamination by the PTO and all of the substantive claims
within the patent were also rejected, but Alza has appealed that rejection to
the United States Board of Patent Appeals and Interferences. There can be no
assurance Alza will not be successful in one or both of its appeals. Therefore,
if the Company develops a drug delivery system for fentanyl and if Alza is
successful in its appeal, the Company would be required to obtain a license from
Alza to market any iontophoretic drug delivery system it develops for fentanyl
in the United States. There can be no assurance such a license would be
available on terms acceptable to the Company, if at all. If the Company cannot
obtain such license, the Company will be required to discontinue its product
development programs using fentanyl. See "Business -- Products and Products
Under Development."
NEED TO MANAGE EXPANDING OPERATIONS. If the Company is successful in
achieving market acceptance of its products, it will be required to expand its
operations, particularly in the areas of research and development, sales and
marketing and manufacturing. As the Company expands its operations in these
areas, those expansions will likely result in new and increased responsibilities
for management personnel and place significant strain on the Company's
management, operating and financial systems and other resources. To accommodate
any such growth and compete effectively, the Company will be required to
implement improved information systems, procedures and controls, and to expand,
train, motivate and manage its work force. The Company's future success will
depend to a significant extent on the ability of its current and future
management personnel to operate effectively both independently and as a group.
There can be no assurance the Company's personnel, systems, procedures and
controls will be adequate to support the Company's future operations.
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FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The further
development and commercialization of the Company's products and technology will
require a commitment of substantial funds to conduct research and development
activities, including preclinical and clinical studies, to expand distribution
and hire additional sales and marketing personnel and to expand and develop
manufacturing capabilities. Although the Company believes that the net proceeds
of the Offering, together with existing cash balances and cash generated from
operations, will be sufficient to fund the operations of the Company for
approximately the next two years, the Company may be required or elect to raise
additional capital before that time. The Company's actual capital requirements
will depend on many factors, including but not limited to, the costs and timing
of the Company's research and development activities, the number and type of
clinical tests the Company is required to conduct in seeking approval of its
products from governmental agencies, the success of the Company's development
efforts, the costs and timing of the expansion of the Company's sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, the Company's ability to maintain existing
collaborative relationships and enter into new collaborative relationships,
competing technological and market developments, the progress of the Company's
commercialization efforts and the commercialization efforts of the Company's
distributors, the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory and third party reimbursement issues, and
other factors.
To satisfy its capital requirements, the Company may seek to raise funds
through public or private financings, collaborative relationships or other
arrangements. Any additional equity financing may be dilutive to shareholders,
and debt financing, if available, may involve significant restrictive covenants.
Collaborative arrangements, if necessary to raise additional funds, may require
the Company to relinquish its rights to certain of its technologies, products or
marketing territories. Failure to raise capital when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such financing, if
required, will be available on terms satisfactory to the Company, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNCERTAINTY OF GOVERNMENT REGULATION. The research, development,
manufacture and marketing of the Company's products are extensively regulated by
the FDA, which requires its approval of drugs and medical devices before they
can be marketed in the United States. Similar approvals are also required from
other regulatory bodies in virtually every developed foreign country before the
Company's products may be marketed in such countries. The regulatory processes
established by these government agencies are lengthy, expensive and uncertain.
In addition, once approval is obtained, that approval may be withdrawn for a
manufacturer's failure to comply with regulatory standards, because of
unforeseen problems related to product safety or as a result of the retroactive
application of changes in the law.
The Company has received approval from the FDA on its New Drug Application
("NDA") for Iontocaine, and the FDA has allowed the Company to market its
electrical dose controllers and electrode products for use with ions of soluble
salts or other drugs under the FDA's 510(k) regulations governing medical
devices. However, the FDA has publicly stated that it intends to require
manufacturers of iontophoretic devices to obtain pre-market approval ("PMA") of
marketed devices currently used with drugs not specifically labeled for
iontophoretic delivery, which would include the Company's dose controller for
use with ions of soluble salts or other drugs, such as Dexamethasone. The FDA's
1994 strategy document states that the enactment of the modified regulatory
procedure was a "high priority" and that the agency intended to publish a
proposed regulation requiring such PMAs in 1996. The agency to date has not
published such a regulation.
If the FDA calls for PMAs, the Company would be required to have a PMA
accepted for filing by the FDA within 90 days after the date of the final
regulation. There can be no assurance that the Company would be able to complete
necessary clinical studies and otherwise prepare and file a PMA within that
period or that any data and information submitted in a PMA would be adequate to
support FDA approval. The Company's failure to submit a PMA and have it accepted
for filing by the FDA within the required timeframe could result in the Company
being required to cease commercial distribution of the Phoresor for use with
ions of soluble salts or other drugs, including Dexamethasone. Upon timely
filing of a PMA, the Company believes (based on
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<PAGE> 16
the FDA's announced position as to certain other devices) that the FDA would
permit continued commercial distribution of the Company's dose controller for
use with Dexamethasone during the time necessary to review the PMA. There can be
no assurance, however, that the FDA would do so, nor can any assurance be given
that the FDA would approve a PMA filed by the Company. The FDA also could
condition PMA approval upon approval of an NDA permitting Dexamethasone to be
labeled for use with the Company's dose controller. If the Company were required
to cease commercial distribution of its iontophoretic drug delivery products for
use with Dexamethasone pending approval of a PMA or NDA, the Company's business,
financial conditions and results of operations could be adversely affected. The
Company will be required to obtain further FDA approvals before it may promote
or otherwise market or label any of its present or future drug delivery products
for use with other named drugs. There can be no assurance that such approvals
will be granted, and the process of obtaining them could be extensive,
time-consuming and costly. The time required to obtain FDA approval after filing
an NDA is uncertain and frequently takes several years. Further, the Company has
not yet filed NDAs on any drug other than Iontocaine. In the course of the
practice of medicine, medical practitioners legally can use the Company's
iontophoretic devices for the delivery of Dexamethasone even though the Company
has not filed an NDA for that therapeutic indication and even though the Company
is not permitted to label or promote its device for use with Dexamethasone. The
FDA may require that the Company conduct clinical trials and obtain NDA approval
for the iontophoretic delivery of Dexamethasone using the Company's dose
controllers and electrodes for the treatment of acute local inflammation in
order for the Company to continue to market its products for that therapeutic
indication. There can be no assurance that such clinical trials, if conducted,
would be successful in establishing safety and efficacy or that NDA approval
could be obtained.
There can be no assurance any future products developed by the Company will
prove to be safe and effective or meet all of the applicable regulatory
requirements necessary to be marketed. Data obtained from testing activities can
be susceptible to varying interpretations which could delay, limit or prevent
required regulatory approvals. In addition, the Company may encounter delays or
denials of approval based on a number of factors, including future legislation,
administrative action or changes in FDA policy made during the period of product
development and FDA regulatory review. The Company may encounter similar delays
in foreign countries. Furthermore, approval may entail ongoing requirements for,
among other things, post-marketing studies. Even if a product developer obtains
regulatory approval, a marketed product, its manufacturer and its manufacturing
facilities and pertinent operations are subject to extensive regulation and
periodic inspections. Discovery of previously unknown problems with a product,
manufacturer or facility could result in FDA sanctions, restrictions on a
product or manufacturer, or an order to withdraw and/or recall a specific
product from the market. There can also be no assurance that changes in the
legal or regulatory framework or other subsequent developments will not result
in the limitation, suspension or revocation of regulatory approvals granted to
the Company. Such events, were they to occur, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is also required to comply with FDA regulations for
manufacturing practices, which mandate procedures for extensive control and
documentation of product design, control and validation of the manufacturing
process and overall product quality. Foreign regulatory agencies have similar
manufacturing standards. Ongoing compliance with these standards and with
labeling, adverse event reporting and other applicable regulatory requirements
is monitored through periodic inspections and market surveillance by federal,
state and local government agencies and by comparable agencies in other
countries. Any third parties manufacturing the Company's products or supplying
materials or components for such products may also be subject to the foregoing
requirements. If the Company, its management or its third party manufacturers
fail to comply with applicable regulations regarding these manufacturing
practices, the Company could be subject to a number of sanctions, including
fines, injunctions, civil penalties, delays, suspensions or withdrawals of
market approval, seizures or recalls of products, operating restrictions and, in
some cases, criminal prosecutions. See "Business -- Government Regulation."
Under the FDA's regulations, when a manufacturer changes or modifies a
device for which it has received a 510(k) clearance, it is required to obtain an
additional 510(k) clearance for the modified device if the modification
significantly affects the safety or efficacy of the device, or if the
modification results in a
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major change in intended use. In such cases, the manufacturer is expected to
make the initial determination as to whether the modification is of a kind that
would require a new 510(k) clearance. The FDA's regulations provide only limited
guidance in making this determination. The FDA has cleared the Company's
electrical dose controller and electrode kits for marketing under a 510(k)
clearance. Since obtaining its 510(k) clearances, the Company has made
modifications to its products. Based on the checklist developed by the FDA to
assist manufacturers in determining whether they are required to obtain a 510(k)
clearance for a modified device, the Company has determined that a new 510(k)
submission was not required in connection with the commercial introduction of
such products. However, there can be no assurance that the FDA will not require
the Company to obtain additional 510(k) clearances with respect to those
products. If the FDA requires the Company to submit a new 510(k) notice for any
device modification, the Company may be prohibited from marketing the modified
device until the 510(k) notice is cleared by the FDA.
The Company may be subject to certain user fees that the FDA is authorized
to collect under the Food and Drug Modernization Act of 1997, which reauthorized
the user fees established in the Prescription Drug User Fees Act of 1992 for
certain drugs.
Because of the known safety and efficacy profile of Dexamethasone and other
approved drugs for which the Company may seek NDA approval for iontophoretic
delivery, the clinical trials and other studies may not be as lengthy or
extensive as would be required for unapproved new drugs that are subject to full
NDA requirements. This strategy, however, depends upon the Company's ability to
obtain a contractual right to reference the safety and efficacy data for such
drugs contained in approved NDAs held by other entities. The Company has
obtained a right to reference safety and efficacy data for Dexamethasone. There
can be no assurance that the Company will be able to obtain a right of reference
for all unapproved drugs that may be used for iontophoretic delivery. The
Company's failure to obtain a right of reference to safety and efficacy data for
any drug for which the Company would like to obtain approval for iontophoretic
delivery could result in the Company being required to independently satisfy any
requirements regulatory agencies may impose with respect to such references,
which could delay the Company's use of such drug or increase the Company's
costs. See "Business -- Government Regulation."
DEPENDENCE ON SINGLE SOURCES OF SUPPLY. A key material used in many of the
Company's current electrode products is available only from a single supplier.
In addition, the Company obtains Iontocaine from Abbott Laboratories under a
contract expiring in December 1998. The Company also has the right to obtain
Dexamethasone from Luitpold Pharmaceuticals, Inc./American Regent Laboratories,
Inc. under a contract expiring in January 2005. The Company believes that, if
necessary, alternative sources can be developed or alternate materials can be
substituted for each of these single-sourced materials. Although the Company has
not experienced difficulty acquiring these materials on commercially reasonable
terms and in sufficient quantities to maintain required production levels, no
assurance can be given that price increases or interruptions in the supply of
these materials will not occur in the future or that the Company will not have
to seek alternate suppliers or obtain substitute materials, which may require
additional product validations and regulatory submissions. Any significant price
increase, interruption of supply, inability to secure an alternate source or
qualify a substitute material could have a material adverse effect on the
Company's ability to manufacture its products or to obtain or maintain
regulatory approval of its products, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's current dose controllers are manufactured under contract with
a third party electronics manufacturer. The Company has not experienced any
difficulty in obtaining adequate supplies of this product from the manufacturer,
but there can be no assurance that an interruption in supply will not occur in
the future or, if there is an interruption in supply, that the Company would be
able to identify, qualify and validate an alternate source of supply within a
reasonable period of time or that such an interruption would not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
LIMITED MANUFACTURING EXPERIENCE. The Company manufactures its
iontophoretic drug delivery electrodes in quantities sufficient to satisfy its
current level of product sales. To meet anticipated increases in sales, the
Company may need to increase its production significantly beyond its present
manufacturing capacity.
16
<PAGE> 18
Accordingly, the Company may be required to increase its manufacturing
capacities or to contract with another party to manufacture its products. There
can be no assurance the Company can successfully increase its capacity on a
profitable basis, or contract with another party on terms acceptable to the
Company, if at all.
The Company's manufacturing process is labor intensive and, therefore,
significant increases in production volume will likely require changes in both
product and process design in order to facilitate increased automation in the
Company's production processes. There can be no assurance such changes in
products or processes or efforts to automate all or portions of the Company's
manufacturing process will be successful or that manufacturing or quality
control problems will not arise as the Company increases production volumes of
its existing products or begins production of new products, any of which events
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company believes its facilities operate in accordance with the Quality
System Regulations currently prescribed by the FDA and in substantial compliance
with ISO 9001 and CE Mark standards. The Company has Good Manufacturing
Practices ("GMP") audits conducted by a qualified, independent organization on a
regular basis and recently obtained its official ISO 9001, and CE Mark
certification. There can be no assurance the Company will be able to maintain
such compliance, particularly if the scale of the Company's manufacturing
operations increases. See "Use of Proceeds," "Business -- Manufacturing" and
"Business -- Government Regulation."
POTENTIAL HEALTH CARE REFORM. Political, economic and regulatory influences
are subjecting the health care industry in the United States to fundamental
changes. The Company anticipates the United States Congress, state legislatures
and the private sector will continue to review and assess alternative health
care delivery and payment systems. Potential approaches that have been
considered include mandated basic health care benefits, controls on health care
spending through limitations on the growth of private health insurance premiums
and Medicare and Medicaid spending, the creation of large insurance purchasing
groups, price controls and other fundamental changes to the health care delivery
system. The Company believes the legislative debate will continue in the future,
and that market forces will demand reduced costs. The Company cannot predict
what impact the adoption of any future federal or state health care reform
measures, private sector reform or other market forces may have on its business,
either currently or in the future. Even the existence of pending health care
reform could have a material adverse impact on the Company by making it
difficult to raise capital or establish collaborative relationships. See
"Business -- Government Regulation."
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT. The Company's ability to
commercialize its products successfully will depend in part on the extent to
which reimbursement for the costs of those products and related treatments will
be available from government health administration authorities, private health
insurers and other organizations in the United States and in foreign markets
where the Company's products will be sold and used. Third party payors can
affect the pricing or relative attractiveness of the Company's products by
regulating the reimbursement they provide on the Company's or competing products
or therapies. There can be no assurance such reimbursement will continue at
present levels, if at all. Furthermore, significant uncertainty exists as to the
reimbursement status of new health care products. There can be no assurance
third party coverage will be available for the Company's future products at
levels necessary for commercial success. Domestic and foreign government and
third party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. If adequate coverage and reimbursement levels are not provided by such
government and third party payors for uses of the Company's products, the market
acceptance of those products could be adversely affected. Given the recent
efforts to control and reduce health care costs in the United States and in
foreign markets, there can be no assurance the currently available levels of
reimbursement will continue to be available in the future for the Company's
existing products or products under development.
Effective October 1, 1991, the Health Care Financing Administration adopted
new regulations providing for the treatment of capital related costs for medical
products. Under the regulations, providers are reimbursed for those capital
costs on a per diagnosis basis at fixed rates unrelated to actual costs.
Equipment costs generally are not reimbursed separately, but are included in a
single, fixed rate, per patient reimbursement. These regulations are being
phased in over a 10 year period and, although the full implications of the
17
<PAGE> 19
regulations cannot yet be known, the Company believes the new regulations may
place more pressure on hospital operating margins, causing them to limit capital
expenditures. The Company is unable to predict what adverse impact on the
Company, if any, additional government regulations, legislation or initiatives
or changes by other payors affecting reimbursement or other matters that may
influence decisions to obtain medical devices may have.
RETENTION AND ATTRACTION OF KEY EMPLOYEES. The Company is highly dependent
on its ability to continue to attract and retain qualified scientific,
managerial and manufacturing personnel. There is intense competition for
qualified personnel in the Company's area of activity, and there can be no
assurance the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. Loss of the
services of or the failure to recruit qualified scientific, managerial or
manufacturing personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
carry key-man insurance with respect to any of its executives or employees. See
"Business -- Employees" and "Management."
RISK OF PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE. The testing,
marketing and sale of drug delivery and related pharmaceutical products for use
in humans involves unavoidable risks. The use of the Company's products in
clinical trials and the sale of its products upon approval may expose the
Company to potential product liability resulting from the use of such products.
In addition, the existence of a product liability claim could have an adverse
effect on the Company's sales of that product, could result in a recall of that
product or require a change in the indications for which it may be used. Product
liability insurance in the Company's industry is expensive and difficult to
obtain.
Although the Company currently has product liability insurance with an
annual limit of $1,000,000 per occurrence and $1,000,000 in the aggregate, there
can be no assurance the existing coverage is adequate. The Company will seek to
maintain and appropriately increase its insurance coverage as its product sales
increase and the clinical development of its new product applications progress.
There can be no assurance, however, that the Company will be able to maintain
its current levels of insurance on acceptable terms, will be able to secure
increased coverage as the commercialization of its products proceeds or that any
particular level of insurance will provide adequate protection against potential
liabilities. The obligation to pay any product liability claim brought against
the Company which is in excess of the Company's insurance coverage could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF SHARE PRICE. Prior
to the Offering, there has been no market for the Common Shares, and there can
be no assurance an active trading market will develop or, if one does develop,
that it will be maintained. The public offering price of the Common Shares
offered hereby will be determined by negotiations between the Company and the
representatives of the Underwriters. For a description of the factors to be
considered in determining the public offering price, see "Underwriting." The
market price of the Common Shares, like that of the common shares of many other
drug delivery, pharmaceutical, biotechnology, medical device and other high
technology companies, is likely to be highly volatile. Factors such as
fluctuations or volatility in the Company's operating results, announcements of
technological innovations, results of clinical trials or new commercial products
by the Company or competitors, regulatory developments in the United States or
foreign countries, changes in the current structure of health care financing and
payment systems, developments in or disputes regarding patent or other
proprietary rights, general market conditions, economic and other external
factors may have a significant effect on the market price of the Common Shares.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICE. Sales of substantial amounts of Common Shares (including shares issuable
upon exercise of outstanding options and warrants) in the public market after
the Offering could adversely affect the market price of the Common Shares. Such
sales could also make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems appropriate. Upon completion of the Offering, the Company will
have outstanding an aggregate of 6,360,204 Common Shares. In addition, the
Company has reserved for issuance 679,303 shares issuable upon exercise of
outstanding options and warrants. The 1,700,000 Common Shares offered hereby
will be freely transferable without restriction or further registration
18
<PAGE> 20
under the Securities Act of 1933, as amended (the "Securities Act"), except for
shares which may be acquired by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. The remaining Common Shares held
by existing shareholders are "restricted securities" as that term is defined in
Rule 144. Restricted securities may be sold in the public market only if they
are registered or if they qualify for exemption from registration under Rules
144 or 701 or other provisions of the Securities Act. Pursuant to certain
"lock-up" agreements, the Company's directors, officers and certain of its
shareholders who collectively hold an aggregate of 4,560,934 Common Shares,
together with the Company, have agreed, for a period of 180 days following the
date of this Prospectus, not to offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
Common Shares without the prior written consent of EVEREN Securities, Inc.
Following the lock-up periods, approximately 1,903,533 Common Shares will be
eligible for sale in the public market without restriction under Rule 144(k) and
an additional 79,808 Common Shares will be eligible for sale subject to certain
volume, manner of sale and other restrictions of Rule 144. All restricted shares
held by existing shareholders of the Company not subject to lock-up agreements
will be eligible for immediate sale in the public market without restriction
under Rule 144(k). In addition, holders of stock options or warrants exercisable
for an aggregate of approximately 220,227 Common Shares have entered into
agreements prohibiting the sales of the underlying Common Shares for 180 days
following the date of this Prospectus. See "Principal Shareholders," "Shares
Eligible for Future Sale" and "Underwriting."
POTENTIAL DILUTION; ABSENCE OF DIVIDENDS. The initial public offering price
will be substantially higher than the tangible book value per Common Share.
Investors purchasing Common Shares in the Offering will therefore incur an
immediate and substantial dilution in tangible book value. In addition,
investors purchasing Common Shares in the Offering will incur additional
dilution to the extent outstanding stock options and warrants are exercised. The
Company has not paid any cash dividends since inception and does not anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy" and
"Dilution." If the initial public offering price is less than $12.00 per share,
the number of Common Shares that Elan will have the right to purchase for the
$10.2 million will be equal to $10.2 million divided by the initial public
offering price. As a result of any issuance to Elan of shares in excess of
833,333, investors in the Offering will own a lower percentage of the total
Common Shares outstanding after the closing of the Offering. See "Transactions
Related to the Offering" and "Certain Transactions."
MANAGEMENT DISCRETION OVER PROCEEDS OF THE OFFERING. The Company's
management will retain broad discretion as to the allocation of a significant
portion of the net proceeds of the Offering. As a result of that discretion, the
Company's management could allocate the proceeds of the Offering to uses which
the shareholders may not deem desirable. In addition, there can be no assurance
the proceeds can or will be invested to yield an appropriate return. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONTROL BY EXISTING SHAREHOLDERS. Following the Offering, the Company's
directors, executives and principal shareholders will beneficially own
approximately 66.7% of the outstanding Common Shares. Accordingly, if such
persons act in concert, they will have the power to elect the Company's
directors and, subject to certain limitations, effect or preclude fundamental
corporate transactions involving the Company. This concentration of ownership
may have the effect of delaying or preventing a change of control of the
Company. See "Principal Shareholders" and "Description of Capital Shares."
ANTI-TAKEOVER PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION; UTAH
LAW AND CERTAIN OF THE COMPANY'S AGREEMENTS. Certain provisions of the Company's
Articles of Incorporation, as amended, and the provisions of the Utah Revised
Business Corporation Act may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which shareholders might otherwise receive a premium
for their shares over then-current market prices. The Company's Articles of
Incorporation provide, among other things, for a classified Board of Directors,
and provide that members of the Board of Directors may be removed only for cause
upon the affirmative vote of the holders of at least two-thirds of the Common
Shares. The Company's Board of Directors is also authorized to issue Preferred
Shares and, in connection with any such issuance, determine the price, rights,
preferences and privileges of those shares without further vote or action by the
Company's shareholders. Any such
19
<PAGE> 21
Preferred Shares may have other rights, including economic rights, which are
senior to the Common Shares and, as a result, the issuance of such Preferred
Shares could have a material adverse effect on the market value of the Common
Shares. See "Description of Capital Shares."
Certain of the provisions of a cross-license agreement between the Company
and Alza may have the effect of deferring, delaying or preventing a change in
control of the Company, a merger involving the Company or the assignment or
transfer of certain technologies of the Company. Under the agreement, the
Company and Alza, among other things, exchanged non-exclusive, royalty free
rights to certain patented technologies which each party believed to be of
significant strategic importance to the potential technological success of many
iontophoretic drug delivery applications. Both parties are prohibited from
assigning their rights under the agreement to certain named companies or any
other entity that derives more than 50 percent of its income from the
development, licensing and/or sale of drug delivery systems to other
pharmaceutical companies without first receiving the consent of the other party.
Restrictions imposed on the Company's ability to assign its rights under this
agreement may limit the Company's ability to capitalize on the commercial and
other economic potential of these technologies through a technology license,
asset sale, merger, combination or similar transaction, and could have an
adverse effect on the market value of the Common Shares. See
"Business -- Collaborative Relationships and Licenses."
ENVIRONMENTAL MATTERS. The Company's research and development activities
involve the controlled use of hazardous materials, chemicals and various
radioactive compounds. These materials, and their use, disposal and handling,
are extensively regulated by federal, state and local government authorities.
Although the Company believes its safety procedures for handling and disposing
of such materials comply in all material respects with the standards prescribed
by state and federal regulations, the risk of accidental environmental
contamination or personal injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages and any such liability could exceed the resources of the
Company. There can be no assurance the Company will not be required to incur
significant costs to comply with such environmental and health and safety laws
and regulations in the future, particularly if the Company develops additional
manufacturing or research facilities and capacity. See "Business -- Government
Regulation."
FORWARD-LOOKING STATEMENTS. Certain statements under the headings
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," and elsewhere in this Prospectus constitute "forward-looking
statements" within the meaning of the rules and regulations promulgated by the
Securities and Exchange Commission. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "intend," "designed," "estimate," "should," or "continue" or the
negatives thereof or other variations thereon or comparable terminology. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These risks, uncertainties and other factors
include, among other things, the following: the Company's sporadic history of
profitability and the continuing uncertainty of its profitability; the Company's
ability to develop and introduce new products; the uncertainty of market
acceptance of the Company's new and existing products and their market
penetration to date; the uncertainties related to the Company's product
development programs; the Company's reliance on collaborative partners and
licenses; the Company's limited sales, marketing and distribution experience and
current dependence on distributors; the risks associated with obtaining
governmental approval of the Company's products; the highly competitive industry
in which the Company operates and the rapid pace of technological change within
that industry; the uncertainty of patented and proprietary technology protection
and the Company's reliance on such patented and proprietary technology
(including reliance on technology licensed from third parties); changes in or
failure to comply with governmental regulation, the uncertainty of third party
reimbursement for the Company's products; the Company's dependence on key
employees; general economic and business conditions and other factors referenced
in this Prospectus.
20
<PAGE> 22
TRANSACTIONS RELATED TO THE OFFERING
In March 1997, the Company entered into a series of agreements with Elan
pursuant to which the Company acquired certain in-process research and
development programs, including exclusive world-wide rights to certain
iontophoretic patents, know-how and clinical data (the "Elan Agreements"). The
Company acquired the Elan technology by issuing Elan two promissory notes, a
$10.0 million note and a $5.0 million note (collectively, the "Elan Notes"),
together with a warrant to purchase 104,166 Common Shares at an exercise price
of $21.60 per share and agreed to pay Elan royalties on any net revenues derived
by the Company from its products.
Concurrently with the closing of the Offering, Elan will purchase directly
from the Company, in private placement transactions (i) 833,333 Common Shares
(subject to adjustment under certain circumstances) for approximately $10.2
million (the amount outstanding under the $10.0 million note) and (ii)
approximately $5.1 million of Common Shares at a price per share equal to the
initial public offering price hereunder (425,000 shares assuming an initial
public offering price of $12.00 per share) (collectively, the "Elan Shares").
Simultaneously with such purchases, the Company will repay the Elan Notes,
including interest thereon. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Collaborative
Relationships and Licenses," "Certain Transactions," "Description of Capital
Shares -- Warrants" and "Underwriting."
If the initial public offering price of the Common Shares is less than
$12.00 per share, the number of Common Shares that Elan will have the right to
purchase for the approximately $10.2 million (the amount outstanding under the
$10.0 million note) will be equal to that amount divided by the initial offering
price. If, as a result of Elan's purchase of the Elan Shares, Elan's aggregate
interest in the Common Shares exceeds 19.9% of the outstanding Common Shares,
Elan may elect to receive non-voting preferred shares to the extent of such
excess. Any such preferred shares would rank pari passu with the Common Shares,
and would be non-voting and convertible into Common Shares on a one-for-one
basis initially. See "Certain Transactions."
Effective November 1, 1997, the Company, Novartis and Dermion amended the
terms of their contractual relationships. Among other things, Novartis exchanged
its 20% interest in Dermion for 238,541 Common Shares and warrants to acquire an
additional 18,750 Common Shares at an exercise price of $21.60 per share. See
"Business -- Collaborative Relationships and Licenses" and "Description of
Capital Shares -- Warrants."
21
<PAGE> 23
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be approximately $18.1
million ($20.9 million if the Underwriters' exercise the over-allotment option
in full) at an assumed initial public offering price of $12.00 per Common Share.
The Company intends to use approximately $11.8 million of the net proceeds from
the Offering to conduct research and development activities. The balance of the
net proceeds (approximately $6.3 million) will be used to expand the Company's
sales and marketing capabilities and to consolidate and equip its facilities, as
well as for working capital or other general corporate purposes. The Company may
also use a portion of the net proceeds from the Offering for the in-licensing or
acquisition of technologies, businesses or products that are complementary to
those of the Company, although no specific acquisitions are being negotiated as
of the date hereof, and no portion of the net proceeds has been allocated for
any such acquisition. Pending such uses, the Company intends to invest the
proceeds of the Offering in short term, investment grade, interest-bearing
securities. See "Transactions Related to the Offering" and "Certain
Transactions."
Elan has agreed to purchase in private placement transactions concurrently
with the closing of the Offering the Elan Shares for approximately $15.3
million. Simultaneously with such purchases, the Company will repay the Elan
Notes, including interest thereon. See "Transactions Related to the Offering"
and "Certain Transactions."
The actual amount expended and the timing of the use of the net proceeds of
the Offering for each purpose set forth in the preceding paragraph may vary
significantly depending upon a number of factors, including the costs and timing
of the Company's research and development activities, the number and type of
clinical tests the Company is required to conduct in seeking approval of its
products from governmental agencies, the success of the Company's developmental
efforts, the costs and timing of the expansion of the Company's sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, the Company's ability to maintain existing
collaborative relationships and enter into new collaborative relationships,
competing technological, market and patent developments, the progress of the
Company's commercialization efforts and the commercialization efforts of the
Company's distributors and co-marketers, the costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims and other
intellectual property rights, developments related to regulatory and third party
reimbursement issues, and other factors. The Company's management will retain
broad discretion as to the allocation of a significant portion of the net
proceeds of the Offering. See "Risk Factors -- Management Discretion Over
Proceeds of the Offering."
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<PAGE> 24
CAPITALIZATION
The following table sets forth (a) the actual capitalization of the Company
as of September 30, 1997 (giving effect to the 1-for-4.8 reverse split) and (b)
the pro forma capitalization of the Company as adjusted to reflect (i) the
issuance and sale of 1,700,000 Common Shares offered hereby, at an assumed
initial public offering price of $12.00 per share and the receipt of the net
proceeds therefrom; (ii) the sale of the Elan Shares to Elan and the
simultaneous repayment of the Elan Notes, including interest thereon,
concurrently with the closing of the Offering; (iii) the mandatory conversion of
the outstanding Series C Preferred Shares into 28,800 Common Shares concurrently
with the closing of the Offering; and (iv) the exchange of Novartis' 20% equity
interest in Dermion for 238,541 Common Shares, which was effected November 1,
1997. The number of the Elan Shares is dependent upon the initial public
offering price. See "Transactions Related to the Offering" and "Certain
Transactions."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997(1)
-------------------------------
PRO FORMA AS
ACTUAL ADJUSTED
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including accrued interest(2)..................... $ 15,527 --
Minority interest................................................. 909 --
Redeemable, convertible Series C Preferred Shares, no par value,
28,800 shares issued and outstanding, actual; no shares issued
and outstanding, pro forma as adjusted.......................... 720 --
Shareholders' equity:
Common Shares, no par value; 3,134,392 shares issued and
outstanding, actual; 6,360,066 shares issued and outstanding,
pro forma as adjusted........................................ 12,047 47,258
Accumulated deficit............................................. (21,574) (21,574)
-------- --------
Total shareholders' equity (deficit).............................. (9,527) 25,684
-------- --------
Total capitalization.............................................. $ 7,629 $ 25,684
======== ========
</TABLE>
- ---------------
(1) Excludes (i) 339,512 Common Shares issuable upon exercise of options granted
pursuant to the Company's stock option plans, at a weighted average exercise
price of $4.80 per share; (ii) 312,500 Common Shares reserved for future
grants of options or awards under the Company's stock option plans; (iii)
170,000 Common Shares issuable upon exercise of warrants to be issued to the
Representatives at an initial exercise price of $15.00 per share, assuming
an initial public offering price of $12.00 per share (the "Representatives'
Warrants"); and (iv) 169,791 Common Shares issuable upon exercise of other
outstanding warrants, at a weighted average exercise price of $18.04 per
share. See "Management -- Employee Benefit Plans -- Stock Option Plans,"
"Certain Transactions," "Description of Capital Shares" and "Underwriting."
(2) Reflects $15,527,000 in notes, including accrued interest, issued to Elan.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends and does not
intend to pay any cash dividends on its Common Shares for the foreseeable
future.
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<PAGE> 25
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 (giving effect to the 1-for-4.8 reverse split), was $7,483,000, or $1.61
per share. Pro forma net tangible book value per share is equal to total
tangible assets of the Company, less total pro forma liabilities, divided by the
pro forma number of Common Shares outstanding, giving effect to (i) the sale of
the Elan Shares to Elan and the simultaneous repayment of the Elan Notes,
including interest thereon, concurrently with the closing of the Offering; (ii)
the mandatory conversion of the outstanding Series C Preferred Shares into
28,800 Common Shares concurrently with the closing of the Offering; and (iii)
the exchange of Novartis' 20% equity interest in Dermion for 238,541 Common
Shares, which was effected November 1, 1997. Without taking into account any
other changes in pro forma net tangible book value after September 30, 1997
other than to give effect to the issuance and sale of the 1,700,000 Common
Shares offered hereby at an assumed initial public offering price of $12.00 per
share and the receipt of the net proceeds therefrom, the pro forma net tangible
book value of the Company as of September 30, 1997 would have been approximately
$25,684,000, or $4.04 per share. This represents an immediate increase in pro
forma net tangible book value of $2.43 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $7.96 per share to
investors in the Common Shares offered hereby. The number of the Elan Shares is
dependent upon the initial public offering price, See "Transactions Related to
the Offering" and "Certain Transactions." The following table illustrates the
per share dilution in net tangible book value to investors in the Offering
assuming the foregoing:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of
September 30, 1997..................................... $ 1.61
Increase per share attributable to new investors.......... 2.43
------
Pro forma net tangible book value per share after
Offering.................................................. 4.04
------
Dilution per share to new investors......................... $ 7.96
======
</TABLE>
The following table sets forth, on the pro forma basis as of September 30,
1997, the differences between the existing shareholders on a pro forma basis and
the new investors with respect to the number of Common Shares purchased from the
Company, the total consideration paid and the average price paid per share
(before deducting estimated underwriting discounts and commissions and estimated
expenses of the Offering):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 4,660,066 73% $29,203,000 59% $ 6.27
New Investors....................... 1,700,000 27% 20,400,000 41% 12.00
--------- --- ----------- ---
Total............................. 6,360,066 100% $49,603,000 100%
========= === =========== ===
</TABLE>
The foregoing tables assume no exercise of any options or warrants
subsequent to September 30, 1997. As of September 30, 1997, there were (i)
339,512 Common Shares issuable upon exercise of options granted pursuant to the
Company's stock option plans, at a weighted average exercise price of $4.80 per
share; (ii) 312,500 Common Shares reserved for future grants of options or
awards under the Company's stock option plan; (iii) 170,000 Common Shares
issuable upon exercise of the Representatives' Warrants at an initial exercise
price of per share; and (iv) 169,791 Common Shares issuable upon exercise of
other outstanding warrants, at a weighted average exercise price of $18.04 per
share. See "Management -- Employee Benefit Plans -- Stock Option Plan," "Certain
Transactions," "Description of Capital Shares" and "Underwriting."
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The financial information set forth below with respect to the Company's
consolidated statements of operations for each of the years in the three year
period ended June 30, 1997, and with respect to the Company's consolidated
balance sheets at June 30, 1996 and 1997, are derived from the consolidated
financial statements of the Company included elsewhere herein that have been
audited by Ernst & Young LLP, independent certified public accountants, and is
qualified by reference to such consolidated financial statements and notes
related thereto. Certain reclassifications have been made to the audited
financial statements for the years ended June 30, 1993 and 1994 to reflect the
effects of the discontinued operations (see footnote (4)) in the selected
consolidated financial data in a manner consistent with the presentation of the
discontinued operations for the years ended June 30, 1995, 1996 and 1997. The
financial data for the three month periods ended September 30, 1997 and 1996 are
derived from the unaudited consolidated financial statements of the Company
included elsewhere herein and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth herein. The results for the three
months ended September 30, 1997, are not necessarily indicative of the results
to be expected for the full year. The following selected consolidated financial
data should be read in conjunction with the Company's consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Product Sales...................... $ 6,980 $ 6,991 $ 6,964 $ 6,829 $ 7,483 $ 1,813 $ 1,997
Contract research revenues,
royalties and license fees....... -- -- -- 2,409 1,800 649 503
-------- -------- -------- -------- --------- -------- --------
Total revenues................... 6,980 6,991 6,964 9,238 9,283 2,462 2,500
OPERATING COSTS AND EXPENSES:
Cost of products sold.............. 4,124 3,499 3,369 3,138 3,338 821 893
Research and development........... 1,984 1,665 1,467 1,099 1,488 391 375
Selling, general and
administrative................... 4,338 3,307 3,338 3,283 3,501 769 1,061
Non-recurring charges.............. 459(1) -- -- 430(2) 15,059(3) -- --
-------- -------- -------- -------- --------- -------- --------
Total costs and expenses......... 10,905 8,471 8,174 7,950 23,386 1,981 2,329
-------- -------- -------- -------- --------- -------- --------
Income (loss) from operations........ (3,925) (1,480) (1,210) 1,288 (14,103) 481 171
Interest expense..................... 152 39 32 9 242 1 287
Interest income and other, net....... 45 102 120 167 291 58 91
-------- -------- -------- -------- --------- -------- --------
Income (loss) from continuing
operations before income taxes and
minority interest.................. (4,032) (1,417) (1,122) 1,446 (14,054) 538 (25)
Minority interest.................... -- -- -- (17) 23 44 11
Income tax expense (benefit)......... (143) (264) (173) (79) 5 20 --
-------- -------- -------- -------- --------- -------- --------
Income (loss) from continuing
operations......................... (3,889) (1,153) (949) 1,542 (14,082) 474 (36)
Income from discontinued
operations(4)...................... 241 444 290 201 44 (7) --
-------- -------- -------- -------- --------- -------- --------
Net income (loss).................... $ (3,648) $ (709) $ (659) $ 1,743 $ (14,038) $ 467 $ (36)
======== ======== ======== ======== ========= ======== ========
PER COMMON SHARE AMOUNTS(5):
Income (loss) from continuing
operations......................... $ (2.77) $ (0.62) $ (0.46) $ 0.48 $ (4.48) $ 0.14 $ (0.01)
Income from discontinued
operations......................... 0.17 0.24 0.14 0.06 0.01 -- --
-------- -------- -------- -------- --------- -------- --------
Net income (loss).................... $ (2.60) $ (0.38) $ (0.32) $ 0.54 $ (4.47) $ 0.14 $ (0.01)
======== ======== ======== ======== ========= ======== ========
Shares used in computing per share
amounts............................ 1,404 1,875 2,090 3,222 3,140 3,282 3,150
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 1,350 $ 2,541 $ 1,861 $ 4,507 $ 6,346 $ 5,213 $ 5,910
Total assets......................... 4,593 5,501 4,770 7,251 8,664 7,816 8,469
Long-term obligations, including
current portion.................... 332 3,263 3,099 44 15,242(6) 33 15,527(6)
Redeemable, convertible preferred
shares............................. 2,380 2,308 2,235 1,270 900 900 720
Accumulated deficit.................. (7,875) (8,584) (9,243) (7,500) (21,538) (7,032) (21,574)
Shareholders' equity (deficit)....... (250) (945) (1,592) 3,992 (9,491) 4,762 (9,527)
</TABLE>
- ---------------
(1) Costs incurred in connection with the issuance of debt and equity securities
in private financing transactions.
(2) Costs incurred in connection with the settlement of certain trade dress
litigation. See Note 3 of the Notes to Consolidated Financial Statements.
(3) Reflects the write-off of certain in-process research and development
(including related transaction costs) purchased from Elan. See Note 3 of the
Notes to Consolidated Financial Statements.
(4) Discontinued operations include the operating results (exclusive of any
corporate allocations and net of applicable income taxes) of the Company's
prosthetics division, which was sold in December 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) See Note 1 of the Notes to Consolidated Financial Statements for information
concerning the computation of per share amounts.
(6) Reflects $15,240,000 and $15,527,000 in notes, including accrued interest,
issued to Elan at June 30, 1997 and September 30, 1997, respectively.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Consolidated
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. This Management's Discussion and
Analysis of Financial Condition and Results of Operations and other parts of
this Prospectus contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
The Company develops, manufactures and commercializes controllable drug
delivery systems using iontophoretic technology. The majority of the Company's
revenues has been generated through the sale of its iontophoretic drug delivery
products in the physical therapy market for use in the delivery of Dexamethasone
and contract research revenues from the Company's collaboration with Novartis.
The Company recently introduced its local dermal anesthesia products into the
market place and, to date, has not realized significant revenue from the sales
of such products. Since its inception, the Company has generally incurred
operating losses and it expects to incur additional operating losses over the
next several years as a result of anticipated costs associated with a
significant increase in internally funded research, development and clinical
trial activities relating to new applications for its iontophoretic drug
delivery technologies, development of a dedicated sales force and the
consolidation and equipping of its facilities. As of September 30, 1997, the
Company's accumulated deficit was approximately $21.6 million. The Company's
ability to achieve and sustain profitability will depend on its ability to
achieve market acceptance and successfully expand sales of its existing
products, as well as successfully complete the development of, receive
regulatory approvals for, and successfully manufacture and market, its products
under development, as to which there can be no assurance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Revenues. Product sales increased 10% from $1.8 million in the three months
ended September 30, 1996 to $2.0 million in the three months ended September 30,
1997. The increase can be attributed to higher sales of the Company's
iontophoretic drug delivery products for the treatment of local inflammatory
conditions resulting from overall market growth in this segment.
Contract research revenues, royalties and license fees decreased 23% from
$649,000 in the three months ended September 30, 1996 to $503,000 in the three
months ended September 30, 1997. This decrease can be attributed to the
Company's receipt of a milestone payment pursuant to its research and
development agreement with Novartis during the three months ended September 30,
1996.
Costs of Products Sold. Costs of products sold increased 9% from $821,000
in the three months ended September 30, 1996 to $893,000 in the three months
ended September 30, 1997, reflecting increased material and labor costs
associated with higher unit sales volume.
Research and Development Expense. Research and development expenditures
decreased 4% from $391,000 in the three months ended September 30, 1996 to
$375,000 in the three months ended September 30, 1997. This decrease reflects
differences in the timing of certain expenditures on the Company's internally
financed product development projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 38%, from $769,000 in the three months ended
September 30, 1996 to $1.1 million in the three months ended September 30, 1997.
The increase to the current period can be attributed primarily to the
recruiting, personnel and other sales and marketing costs associated with the
Company's continued investment in the market introduction of Numby Stuff. In
addition, the Company realized increased costs associated with routine
maintenance and prosecution of the patent portfolio acquired from Elan.
26
<PAGE> 28
Other Costs and Expenses. Interest expense increased from $1,000 in the
three months ended September 30, 1996 to $287,000 in the three months ended
September 30, 1997. This increase can be attributed to the recognition of
non-cash interest expense on $15.0 million in notes issued to Elan in connection
with the Elan Agreements. Interest income and other miscellaneous income was
$58,000 in the three months ended September 30, 1996, compared to $91,000 in the
three months ended September 30, 1997, reflecting interest earnings on higher
average invested cash balances during the current period.
The Company has substantial net operating loss carryforwards which, under
the current "change of ownership" rules of the Internal Revenue Code, may be
subject to substantial annual limitation. Income taxes for the three months
ended September 30, 1996 reflect the Company's effective income tax rate for
fiscal 1997. No income tax expense was recognized for the three months ended
September 30, 1997, which reflects management's estimate of its fiscal 1998 tax
position.
Income (loss) from Continuing Operations. Income from continuing operations
of $474,000 in the three months ended September 30, 1996 compares to a loss from
continuing operations of $36,000 in the three months ended September 30, 1997.
The decrease in fiscal 1997 can be attributed to the receipt of the milestone
payment from Novartis in the prior year, non-cash interest charges on the Elan
indebtedness and the Company's investment in the sales and marketing of Numby
Stuff.
FISCAL YEARS ENDED JUNE 30, 1996 AND 1997
Revenues. Product sales increased 10% from $6.8 million in fiscal 1996 to
$7.5 million in fiscal 1997. This increase can be attributed to increased sales
of the Company's iontophoretic drug delivery products for the treatment of local
inflammatory conditions resulting from the first full year of sales of the
Company's newly introduced electrode kits for this market segment.
Contract research revenues, royalties and license fees decreased 25% from
$2.4 million in fiscal 1996 to $1.8 million in fiscal 1997. During fiscal 1996,
the Company entered into a research and development agreement with Novartis to
develop proprietary iontophoretic drug delivery systems for Novartis drugs.
Pursuant to the agreement, the Company received contract research revenues and
other payments of $1.4 million and $1.8 million, respectively, in fiscal 1996
and 1997. In addition, in fiscal 1996, the Company received a one-time license
fee of $1.0 million. Contract research revenues received during fiscal 1997 and
1996 pursuant to the Novartis agreement covered a substantial portion of the
Company's research and development expenses.
Costs of Products Sold. Costs of products sold increased 6% from $3.1
million in fiscal 1996 to $3.3 million in fiscal 1997, reflecting increased
costs attributable to higher material and labor costs resulting from higher unit
sales volume. Costs of products sold decreased slightly as a percent of product
sales due to productivity gains which were offset, in part, by increased costs
associated with new product introductions.
Research and Development Expense. Research and development expenditures
increased 36%, from $1.1 million in fiscal 1996 to $1.5 million in fiscal 1997.
The increase reflects increased costs of personnel and other expenditures
associated with the development programs conducted under the Novartis agreement,
as well as research and development expenditures on the Company's internally
financed product development projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 6%, from $3.3 million in fiscal 1996 to $3.5
million in fiscal 1997. The increase in fiscal 1997 can be attributed to the
recruiting, personnel and other sales and marketing costs associated with the
Company's market introduction of Numby Stuff. The increase was offset, in part,
by decreases in general and administrative expenses.
Non-Recurring Charges. In March 1997, the Company entered into the Elan
Agreements, pursuant to which the Company acquired certain rights to Elan's
in-process research and development relating to iontophoretic drug delivery,
including issued and pending United States and foreign patents, know-how and
clinical data. As a result of this transaction, the Company recorded a
non-recurring charge of approximately $15.1 million.
27
<PAGE> 29
During fiscal 1996, the Company recorded a non-recurring charge of $430,000
for costs incurred in connection with the settlement of a trade-dress
infringement suit brought by a competitor of the Company relating to a newly
developed series of the Company's electrode kits for the treatment of acute
local inflammation (the "Litigation").
Other Costs and Expenses. Interest expense increased from $9,000 in fiscal
1996 to $242,000 in fiscal 1997. This increase can be attributed to the
recognition of non-cash interest expense on $15.0 million in notes issued to
Elan in connection with the Elan Agreements. Interest income and other
miscellaneous income was $167,000 in fiscal 1996, compared to $291,000 in fiscal
1997, reflecting interest earnings on higher average cash balances during fiscal
1997.
The Company has substantial net operating loss carryforwards. Income taxes
in both periods reflect estimated alternative minimum tax liabilities, offset by
the recognition of future tax benefits resulting from the allocation of income
tax expense, at statutory rates, to the pre-tax income of the Company's
discontinued operations.
Income (loss) from Continuing Operations. Income from continuing operations
of $1.5 million in fiscal 1996 compares to a loss from continuing operations of
$14.1 million in fiscal 1997. Excluding the non-recurring charges in both fiscal
years, income from continuing operations decreased from $2.0 million in fiscal
1996 to $1.0 million in fiscal 1997. The decrease in fiscal 1997 can be
attributed primarily to the one time $1.0 million license fee the Company
received from Novartis in fiscal 1996.
FISCAL YEARS ENDED JUNE 30, 1995 AND 1996
Revenues. Product sales decreased 3% from $7.0 million in fiscal 1995 to
$6.8 million in fiscal 1996. Sales increases during fiscal 1996 were offset by
the full year effect of the loss of sales resulting from the acquisition, during
fiscal 1995, of several of the Company's key product distributors by a major
competitor in the physical therapy market. Sales in fiscal 1996 were also
negatively impacted by the Litigation, which delayed the launch of the newly
developed series of electrode kits for the treatment of acute local
inflammation. During fiscal 1996, the Company realized $1.4 million in revenues
from contract research and development services and a one-time $1.0 million
license fee in connection with its research and development agreement with
Novartis, offsetting the decrease in product sales in fiscal 1996.
Cost of Products Sold. Costs of products sold decreased 9% from $3.4
million in fiscal 1995 to $3.1 million in fiscal 1996. This improvement was
attributed to increased manufacturing efficiencies and lower materials costs
resulting from the use of new materials and sources of supply and reductions in
manufacturing overhead.
Research and Development Expense. Research and development expense
decreased 27% from $1.5 million in fiscal 1995 to $1.1 million in fiscal 1996.
Research and development expense during fiscal 1996 consisted primarily of
expenditures relating to the Company's research programs with Novartis, which,
in the aggregate, were lower than the research and development expenditures in
fiscal 1995. The Company's research and development expenditures in fiscal 1995
included costs relating to the Company's NDA filing for the approval of
Iontocaine, as well as expenditures relating to the Company's collaborative
development projects with Laboratoires Fournier.
Non-Recurring Charges. The Company recorded a non-recurring charge of
$430,000 during fiscal 1996 for costs incurred in connection with the
Litigation.
Other Costs and Expenses. Interest expense decreased from $32,000 in fiscal
1995 to $9,000 in fiscal 1996 due to the lower average principal balance due
under the Company's term loan. Interest income and other miscellaneous income
was $120,000 in fiscal 1995, compared to $167,000 in fiscal 1996, primarily due
to interest earnings on higher average cash balances from operating cash flows,
and the Company's sale to Novartis of a 20% interest in Dermion in fiscal 1996.
The Company has substantial net operating loss carryforwards. The credit
provision for income taxes in fiscal 1996 reflects the recognition of future tax
benefits resulting from the allocation of income tax expense, at
28
<PAGE> 30
statutory rates, to the pre-tax income of the Company's discontinued operations,
offset, in part, by estimated alternative minimum tax liabilities. The credit
provision for income taxes in fiscal 1995 reflects the recognition of future tax
benefits resulting from the allocation of income tax expense, at statutory
rates, to the pre-tax income of the Company's discontinued operations.
Income (loss) from Continuing Operations. The loss from continuing
operations of $949,000 in fiscal 1995 compares to income from continuing
operations of $1.5 million in fiscal 1996. Excluding the non-recurring charge in
fiscal 1996, the difference is attributable primarily to the Company's receipt,
in fiscal 1996, of contract research and development revenues and a $1.0 million
one-time license fee in connection with the Company's research and development
agreement with Novartis.
LIQUIDITY AND CAPITAL RESOURCES
Prior to fiscal 1996, the Company funded its operating losses primarily
through private equity financing, convertible debt arrangements, capital lease
financing, and collateralized bank loans. Beginning in fiscal 1996, the
Company's operating and research activities have been internally funded,
primarily as a result of the research and development revenues and license fees
the Company has received from Novartis.
As of September 30, 1997, the Company had cash and cash equivalents
totaling approximately $5.9 million. Cash in excess of immediate requirements is
invested in a manner which is intended to maximize liquidity and return while
minimizing investment risk, and, whenever possible, the Company seeks to
minimize the potential effects of concentration of credit risk.
In the three month period ended September 30, 1996, the Company generated
$829,000 of cash from operating activities compared to a use of cash of
approximately $194,000 in the three month period ended September 30, 1997. This
decrease in cash flow is due to the Company's net loss for the current period,
as discussed above, and to changes in working capital during the three month
period ended September 30, 1997. The Company generated approximately $1.0
million of cash from operating activities during fiscal 1997, compared to $2.2
million in fiscal 1996. The decrease can be attributed primarily to the one-time
license fee received from Novartis in fiscal 1996 and an increased net
investment in working capital in fiscal 1997. In fiscal 1996, the Company
generated cash of $2.2 million from operating activities, compared to a use of
cash of $298,000 in fiscal 1995. The transition to generating cash in fiscal
1996 can be attributed to the research and development funding and the one-time
license fee the Company received from Novartis in fiscal 1996. During fiscal
1995, the Company's investment in finished goods inventory increased in
preparation for the launch of a new electrode kit for local inflammation and
accrued liabilities increased due to the reserve established for the estimated
costs of the Company's planned facilities consolidation.
Historically, the Company's operations have not been capital intensive and,
therefore, its investment in property, plant and equipment during the periods
presented has not been significant. The Company anticipates however, that its
investment in facilities and equipment will increase in the future, due to the
Company's desire to consolidate its manufacturing, administrative and research
and development facilities and the need to increase the automation of its
electrode manufacturing processes to meet higher expected sales volumes. The
Company's expenditures for equipment and furniture were $156,000, $316,000 and
$231,000 in each of the fiscal years ended June 30, 1995, 1996 and 1997,
respectively.
During fiscal 1997, the Company generated $255,000 in cash from the private
placement of its Common Shares. During fiscal 1996, the Company generated $1.0
million ($892,000, net of related expenses) in cash from the sale of a 20%
equity interest in Dermion to Novartis. See "Transactions Related to the
Offering."
The Company expects to continue to incur substantial costs associated with
the expansion of its research and development activities, including clinical
trials, development of a dedicated sales force and consolidating and equipping
its facilities. The Company anticipates that the net proceeds of the Offering,
together with existing cash balances and cash generated from operations
(including funding from Novartis) will be sufficient to fund the operations of
the Company for approximately the next two years. However, the Company may be
required or elect to raise additional capital before that time. The Company's
actual capital requirements will
29
<PAGE> 31
depend on many factors, some of which are outside the Company's control. See
"Risk Factors -- Future Capital Needs; Uncertainty of Additional Funding" and
"Use of Proceeds."
Concurrently with the closing of the Offering, Elan has agreed to purchase
the Elan Shares directly from the Company, in private placement transactions,
for approximately $15.3 million. Simultaneously with Elan's purchase of such
shares, the Company will repay the Elan Notes, including interest thereon. See
"Transactions Related to the Offering," "Certain Transactions" and Note 7 of the
Notes to Consolidated Financial Statements.
DISCONTINUED OPERATIONS
Prior to January 1997, the Company provided state-of-the-art prosthetics
products to amputees throughout the United States, Canada and Western Europe
through its Motion Control division. Motion Control's principal products were
the Utah Artificial Arm and the ProControl II, advanced myolectric prostheses
for above and below the elbow amputees.
In December 1996, the Company sold the assets of the Motion Control
division for $1.0 million and granted the purchaser an exclusive, worldwide
license and sublicense to the patents, trademarks, know-how and other
intellectual property of the Company relating to the Motion Control products.
Under the terms of that sublicense agreement, the Company will receive license
fees and royalties on future sales of the Motion Control products. There was no
significant gain or loss recognized on the sale. The results of operations of
the Motion Control division, exclusive of any corporate allocations, are
reported as discontinued operations in the consolidated financial statements for
all periods presented. See Note 4 of the Notes to the Consolidated Financial
Statements.
30
<PAGE> 32
BUSINESS
INTRODUCTION
The Company develops, manufactures and commercializes controllable drug
delivery systems using iontophoretic technology. Iontophoresis is a non-invasive
method of enhancing and controlling the transport of water-soluble ionic drugs
into and through the skin using a low level electrical current. The Company's
proprietary iontophoretic drug delivery systems allow rapid onset and cessation
of therapeutic action, as well as programmable dose control. The systems enable
caregivers and patients to control the onset of drug effectiveness and maintain,
reduce or cease drug administration once a desired therapeutic effect is
observed. The programming feature also enables caregivers to customize dosing
patterns to meet each patient's specific needs. The Company is developing
systems designed to enable patient monitoring and control. The flexibility of
the Company's proprietary systems provides therapeutic control not possible with
many alternative drug delivery methods, including oral tablets and capsules,
injections, inhalants and passive transdermal patches. The Company's systems may
also increase bioavailability, safety and patient comfort.
The Company markets two products, an iontophoretic system used to deliver
Dexamethasone and an iontophoretic system used to deliver Iontocaine. Since it
was introduced in 1979, the Company's system for the delivery of Dexamethasone
has been used primarily by physical therapists and athletic trainers in over 10
million patient applications for the treatment of acute local inflammatory
conditions such as tendonitis, tennis elbow and carpal tunnel syndrome. More
than 8 million of these applications have occurred since 1990, when the Company
introduced its present family of gel electrodes for use with its microprocessor
controlled dose controller. The Company's system to deliver Iontocaine provides
needle-free, long-lasting local dermal anesthesia up to six times more rapidly
and up to three times deeper than can be achieved using topical anesthetic
creams. The Company is initially marketing its Iontocaine product under the
brand name Numby Stuff in pediatric hospitals in the United States. The Company
is also developing a number of iontophoretic drug delivery systems for other
indications, including conscious sedation, tocolysis, post operative and chronic
pain control, and osteoporosis.
BACKGROUND ON DRUG DELIVERY SYSTEMS
A wide variety of drug delivery methods is currently available in the
market, although not all drugs can be delivered by all routes of administration.
For certain applications, there are clinical benefits in providing rapid onset
of therapeutic action and the minimum drug dosage necessary to achieve the
desired effect. In all applications, drug delivery should be convenient, cost
effective and as non-invasive as possible.
Conventional Oral Methods. Conventional oral drug dosage forms, such as
pills and capsules, are the most common types of drug delivery. These methods
offer ease of administration and low cost-per-use, but their application is
often limited by inconvenient dosage intervals and less than optimal
bioavailability (due to degradation of the drug in the gastro intestinal tract
("GI tract") and the liver) and efficacy. In addition, conventional oral dosage
forms often produce higher initial drug levels than are required to achieve the
desired therapeutic effects, thereby increasing the risk of side effects and
lower than therapeutically optimal levels of the drug as it is metabolized and
cleared from the body. More frequent administration of lower doses can sometimes
mitigate this problem, but can also increase cost, inconvenience and patient
noncompliance.
Injection Methods. Injectable drug dosage forms generally provide rapid
onset of action and offer many of the same advantages as conventional oral drug
dosage methods. Like conventional oral dosage forms, however, they often produce
higher initial drug levels than are required to achieve the desired therapeutic
effect, thereby increasing risk of side effects. Injectable drug delivery
methods require caregiver administration and have the added disadvantage of
using needles as a delivery path into the body, raising the possibility of
needle stick injuries, as well as risk of infection to the caregiver and the
patient. The use of needles also increases patient anxiety due to the pain of
injection.
Controlled Release Methods. Controlled release drug delivery systems
attempt to overcome many of the limitations inherent in conventional drug
delivery methods by maintaining a more consistent and appropriate drug level in
the bloodstream. Sustained release oral dosage forms are designed to release the
active
31
<PAGE> 33
ingredients of the drug into the body at either a predetermined point in time or
at a predetermined rate over an extended period of time, but they generally do
not provide rapid onset of action and may not achieve optimal bioavailability.
Passive transdermal patches allow absorption of drugs through the skin and
generally provide a convenient method of administering drugs at a steady rate
over an extended period of time, but onset of action may take hours after
application and absorption of the drug may continue for hours after the patch is
removed, which can increase side effects. Additionally, because human skin is an
effective barrier, most drug formulations will not passively permeate the skin
in therapeutic quantities. Continuous infusion pumps introduce drugs directly
into the body, thereby providing rapid onset of action, and may offer variable
controlled dosing. Infusion therapy requires insertion of a needle, however,
and, therefore, can be painful and threatening to the patient. The use of
infusion pumps also increases the risk of infection and generally requires
medical professionals for safe administration, which may significantly increase
costs.
Pulmonary and Nasal Methods. Both pulmonary (inhalation) delivery and nasal
sprays are designed to provide rapid onset of action or to deliver drugs that
are not orally bioavailable. Pulmonary delivery has the disadvantage of variable
drug amounts reaching the alveoli of the lungs, therefore making it difficult to
control the bioavailability of the dose. Nasal sprays can cause irritation in
some patients and can be difficult to administer in variable intranasal
conditions. In addition, the dose of the product cannot be controlled by the
patient over a period of time, and patients and caregivers may have difficulty
maintaining the desired therapeutic effect.
Other. Many existing and emerging pharmaceutical compounds, such as
biotechnology-derived oligonucleotides, peptides and other macromolecular drugs,
cannot be effectively administered by traditional non-invasive methods and are,
therefore, administered only by injection or infusion. Oral delivery of such
molecules is generally inefficient due to the rapid breakdown of the molecules
during digestion and the natural impermeability of the GI tract to larger
molecules. The skin is even less permeable to macromolecules than the GI tract,
which the Company believes is the primary reason passive transdermal delivery of
those molecules using patch technology has not been successful to date.
IONTOPHORETIC DRUG DELIVERY AND ITS ADVANTAGES
Iontophoretic drug delivery systems are designed to overcome many of the
limitations associated with many other drug delivery methods. Iontophoresis is
an active method of transdermal drug delivery in which water-soluble, ionized
(electrically charged) drugs are transported through the skin for local or
systemic therapeutic applications by applying a low level, external electrical
current. The amount of drug delivered through the skin is proportional to the
total electrical charge applied (which is a function of time and current).
Therefore, it is possible to program the system's electrical current levels to
control more precisely the desired drug dose, delivery rate and the pattern of
delivery.
Iontophoretic drug delivery systems are generally comprised of a power
supply which is used to control drug dose (the "dose controller") and a pair of
electrodes, one containing the drug and one serving as a grounding electrode to
complete the electrical circuit through the skin. The drug electrode consists of
a matrix which contains the drug solution, a conductive element which
distributes the electric current through the drug matrix, an electrical
connector that links the electrode to the dose controller, and an adhesive layer
that attaches the electrode to the body. The grounding electrode consists of
similar components, but without the drug solution. The drug delivery electrode
is applied to the patient's skin at a local treatment site (such as for joint or
tendon soreness or to induce local dermal anesthesia), or at any suitable site
on the body for systemic drug delivery. The grounding electrode is applied to
the skin a short distance away from the drug electrode. As is shown in the
following illustration, when an electric current with the same positive or
negative electric charge as the drug is applied to the drug electrode, the drug
is repelled from the electrode and into the skin in the same way as like poles
of two magnets repel each other. Although the Company's currently marketed
products consist of discrete components, the Company has begun the development
of more advanced systems which integrate all components in a single miniaturized
patch.
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LOGO
The Company believes that, for certain applications, iontophoretic drug
delivery systems may offer several advantages over other drug delivery methods,
including:
Broad Applicability. A substantial number of the drugs on the market and in
development today are, the Company believes, ionic and water-soluble and,
therefore, may be amenable to delivery by iontophoresis. In addition,
iontophoretic drug delivery systems may be applicable to a significantly broader
range of pharmaceutical compounds, including larger drug molecules such as
peptides and oligonucleotides, than passive transdermal drug delivery methods.
Increased Convenience and Compliance. Iontophoretic drug delivery systems
are easy to use and offer simple, needle-free administration that eliminates the
inconvenience of frequent dosing, and may, if successfully developed and
approved by applicable regulatory authorities, permit patient
self-administration.
Programmable Control of Drug Delivery. The rate, timing and pattern of drug
delivery using an iontophoretic drug delivery system can be controlled by
varying the electrical current applied to the system's electrodes. The benefits
of this ability to control the drug's delivery include the following:
- Rapid Onset of Action -- The speed with which a drug delivery system can
provide efficacious blood levels of the target drug determines the onset
of therapeutic action. Iontophoretic drug delivery systems allow many
drugs to pass directly through the skin into underlying tissue and the
bloodstream at a rate that is significantly more rapid than oral or
passive transdermal delivery methods. Research has shown that certain
drugs can be delivered by iontophoresis more than 10 to 1,000 times
faster than drug delivery by passive transdermal patches.
- Rapid Cessation of Administration -- In certain applications, it is
desirable that drug delivery cease once the desired effect has been
obtained. Iontophoretic drug delivery systems allow rapid cessation of
drug delivery since absorption of water-soluble drugs from the skin into
bloodstream ceases rapidly after the current is turned off or the drug
electrode is removed from the skin.
- Variable Dose Control -- Iontophoretic drug delivery systems may be
designed to offer precision controlled dosing that can be customized for
desired therapeutic profiles or for individual patient needs, including
baseline and/or bolus dosing.
- Patient Controlled Dosing -- Iontophoretic drug delivery systems may be
designed to offer active patient control or intervention in the dosing
regimen, while at the same time incorporating programmed lock-outs for
added safety and dose monitoring capability.
- Dose-to-Effect -- Iontophoretic drug delivery systems allow caregivers
or patients to monitor the onset of drug effectiveness and maintain,
progressively reduce or cease drug administration once a desired
therapeutic effect is observed.
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THE COMPANY'S IONTOPHORETIC SYSTEMS
While the fundamentals of iontophoresis have been understood for decades,
the technology has become commercially practicable as a method for delivering
drugs only recently as a result of advances in electronics, materials science
and electrochemistry. These advances have led to the development of more
efficient and adaptable drug containment electrodes and more reliable, compact
and programmable dose controllers. The Company has developed iontophoretic drug
delivery systems which incorporate dose controllers and electrodes that have
enhanced performance characteristics, which the Company believes are adaptable
to a number of clinical settings and therapeutic applications, and which the
Company believes are cost effective in a number of therapeutic applications. The
Company's current iontophoretic drug delivery systems are not designed to
facilitate patient self-administration, but drug delivery systems currently
being developed by the Company may allow patients significant control over the
administration of certain drugs.
In March 1997, the Company entered into an agreement with Elan to obtain an
exclusive, worldwide license to the commercial exploitation of certain
technology developed by Elan in the field of iontophoretic drug delivery and
certain other electro-transport fields. The acquisition of the Elan technology
is intended to speed the development and commercialization of products using the
combined technologies, including the miniaturized integrated, wearable systems
currently under development by the Company. The Company also believes its
competitive position in relation to other companies engaged in the development
of iontophoretic drug delivery systems has been significantly enhanced by Elan's
broad base of United States and foreign patents, in-depth body of in vitro drug
transport data and in vivo animal and human clinical data, in addition to other
proprietary know-how.
Dose Controllers. The Company's dose controllers generate the low-level
electrical current needed for iontophoretic drug delivery. The Company presently
markets a compact, fully portable dose controller, the Phoresor, that offers
durable microprocessor control, enhanced user interface, versatile programmable
dosing capability, autocalculating treatment time (based on electrical current
settings and selected dose) and constant current output (by automatically
adjusting voltage to compensate for variations in the electrical resistance of
the skin). The Phoresor incorporates a microprocessor, other electronic
circuitry, on-board software that monitors and controls the rate of current
flow, and an easy-to-use control panel. The Company has also developed, and
anticipates marketing in the near future, a new dose controller for specific use
with its pediatric local dermal anesthetic product. See "Business -- Products
and Products Under Development -- Local Dermal Anesthesia." The Company's next
generation of dose controllers, both stand-alone and wearable miniaturized
versions, are being designed to include many of the same features as the
Company's current dose controllers. Depending on the therapeutic application,
the new generation dose controllers may be designed to allow bolus dosing
capability and programming (using a physician's or pharmacist's key) to adjust
dosing to match desired delivery profiles or patterns.
In a clinical setting for short treatment durations, the battery and dose
controller are housed in a discrete, reusable, table-top unit connected to a
pair of disposable, single-use electrodes to which drug solution is added
immediately prior to application to the patient. This technology is used in the
Company's current products. For longer term or chronic applications or
patient-administered therapy outside the clinical setting, the Company is
developing iontophoretic drug delivery systems in which the battery, dose
controller and electrodes will be combined in a small patch applied to the skin
as a single, integrated unit. The electronic components may be reusable, with
replaceable or rechargeable batteries and single-use, disposable drug and
grounding electrodes, or the entire unit may be disposable after a single use.
The drug may be added to the electrode drug pad during manufacturing, or may be
stored separately in the system and introduced into the drug containment pad
immediately before use by means of proprietary, integrated hydration devices
developed by the Company.
Electrodes. Electrode design is critical to successful delivery of a drug
by iontophoresis. The Company's electrodes incorporate patented and proprietary
design innovations which the Company believes offer significant advantages to
both patients and health care providers. The Company's proprietary electrode
technology includes patented polymer hydrogels which absorb drug solutions in
seconds, becoming soft and pliable so as to conform better to the body and to be
comfortable to the patient. The Company's electrode
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technology also employs special silver and silver chloride inks to distribute
electric current evenly from the dose controller to the electrodes and control
possible changes in acidity and alkalinity (pH changes) which can occur during
iontophoresis, thereby preventing possible drug instability or unacceptable skin
irritation.
BUSINESS STRATEGY
The Company's primary business goal is to establish its proprietary
iontophoretic drug delivery systems as a preferred, cost effective means of
delivering a wide range of drugs. To achieve this goal, the Company uses its
multi-disciplinary expertise in pharmacology and drug formulation, regulatory
and product testing, microelectronics, electrochemistry, polymer chemistry and
adhesives. The Company's strategy for achieving this goal includes the following
principal elements:
Develop Systems for Off-Patent Drugs. The Company intends to continue the
independent development of proprietary iontophoretic drug delivery systems for
off-patent drugs with known safety and efficacy and for which the Company
believes its drug delivery technology may be cost competitive with and offer
advantages over other drug delivery methods. The Company believes that, by
developing proprietary products based on currently approved off-patent drugs,
rather than new chemical entities ("NCEs"), it can reduce regulatory and
development risks and shorten the product development cycle for certain
products. See "Risk Factors -- Uncertainty of Government Regulation" and
"Business -- Government Regulation."
Enter into Collaborative Relationships. In order to gain access to NCEs and
other proprietary drugs, and to reduce the costs and risks associated with the
development of iontophoretic drug delivery systems for such compounds, the
Company intends to enter into collaborative relationships with pharmaceutical
and other biotechnology companies whose drugs could benefit from the Company's
iontophoretic drug delivery technology. The Company has entered into a
collaborative development agreement with Novartis for the purpose of evaluating
the potential for the development of iontophoretic drug delivery systems for a
number of Novartis compounds for several therapeutic applications. In
collaboration with Novartis, the Company is currently developing an
iontophoretic drug delivery system to deliver a drug for the treatment of
osteoporosis.
Increase Market Penetration of Existing Products. In order to leverage the
capabilities of its direct and dealer sales forces, the Company intends to enter
into collaborative sales and marketing relationships with other parties that
have specific expertise in markets targeted by the Company. In general, the
Company intends to use collaborative sales and marketing relationships in the
sale and distribution of its products to the general physician, international
and specialty markets, including the podiatric, orthopedic and chiropractic
markets.
In addition, the Company is actively seeking to expand the commercial
potential of its local anesthesia and acute inflammation products by pursuing
new applications. The Company will continue to conduct (i) marketing studies
aimed at expanding the use of its delivery system for Iontocaine to a broader
range of procedures and (ii) clinical trials to further establish the safety and
efficacy of iontophoresis for the treatment of local inflammation using
Dexamathasone or for use in other specific procedures.
Broaden Technology Platform. The Company intends to enhance its proprietary
iontophoretic technology base principally through internal research and
development. The Company will also pursue additional iontophoretic and other
complementary products and technologies owned or developed by third parties, on
a case-by-case basis, through in-licensing or acquisition.
Control Product Manufacturing Processes. The Company intends to maintain
control over the manufacture of its electrode kits in order to retain control
over the quality of its products and capture a larger portion of the product
revenue stream when third parties are involved in the marketing of the product.
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The Company currently has product development programs at various stages of
development for acute local inflammation, local dermal anesthesia, remission of
pre-term labor, conscious sedation, pain control and osteoporosis. The following
table lists the therapeutic applications of the principal products developed or
currently under development by the Company. This table is qualified in its
entirety by reference to the more
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detailed descriptions set forth elsewhere in this section. There can be no
assurance that any products or products under development listed below, other
than those currently approved by or cleared for marketing by the FDA, will be
developed successfully or approved in a timely manner at all, or even if
developed or approved, be successfully manufactured or marketed. See "Risk
Factors." In addition, the status of development indicated below does not
necessarily indicate the order in which the products shown may be approved by
the FDA. See "Business -- Government Regulation" for description of phases of
clinical development.
<TABLE>
<CAPTION>
APPLICATION THERAPEUTIC AGENT PRODUCT STATUS
- --------------------------------- ----------------------- ------------------------------
<S> <C> <C>
Acute local inflammation Dexamethasone Currently marketed(1)
Local dermal anesthetic Iontocaine Currently marketed
Pain control Hydromorphone Phase II clinicals(2)
Conscious sedation Fentanyl Phase I clinicals(3)
Local mucosal anesthetic Iontocaine Preclinical
Remission of pre-term labor Terbutaline Preclinical
Osteoporosis Novartis compound(4) Preclinical
</TABLE>
- ---------------
(1) Currently marketed under a 510(k) clearance for use with "ions of soluble
salts or other drugs." The Company is developing Phase III protocols and
intends to file an NDA in the future, as is currently required by the FDA.
See "Business -- Government Regulation."
(2) Initial Phase II clinical studies were conducted by Elan. The Company
acquired the rights to the data from those studies under the Elan
Agreements. The Company will be required to conduct expanded Phase II and
Phase III clinical trials. The Company does not intend to pursue development
of a hydromorphone product until the second quarter of calendar year 1998.
(3) The Company has conducted, or participated in the conduct of, two
independent human blood level studies for the iontophoretic delivery of
fentanyl. The Company does not intend to pursue development of a fentanyl
product until the second quarter of calendar year 1998. See "Risks
Factors -- Dependence on Patents and Proprietary Technology."
(4) Under development pursuant to an agreement with Novartis. See
"Business -- Collaborative Relationships and Licenses."
ACUTE LOCAL INFLAMMATION
Acute local inflammatory conditions resulting from exercise, sports
injuries, trauma or repetitive motion disorders are among the leading types of
injuries occurring in the workplace and among physically active adults. The most
common of these injuries include tendonitis, bursitis, carpal tunnel syndrome
and epicondylitis (tennis elbow). Generally, patients suffering from these
conditions are initially treated with oral nonsteroidal anti-inflammatory drugs
("NSAIDS") for a period of up to fourteen days. Although steroid injections are
generally more effective than NSAIDS, medical professionals usually avoid
steroid injections in all but severe cases because of the negative side effects
that can accompany bolus needle injections of corticosteroids into an inflamed
joint or tendon, including risk of infection, tissue distortion, tendon
weakening and tendon rupture. If patients do not respond to treatment with
NSAIDS, the physician generally has two options -- refer the patient to a
physical therapist, or proceed with injection of anti-inflammatory steroids such
as Dexamethasone. Based on market data with respect to the number of
corticosteroid injections for acute inflammation as well as data gathered by the
Company in a survey it conducted of 54 physical therapy clinics around the
United States with respect to the number of patients that visit physical therapy
clinics for acute inflammation, the Company estimates that the total potential
retail market in the United States for the sale of iontophoretic drug delivery
systems to clinicians to treat acute local inflammatory conditions is in excess
of $400 million. In addition, the Company estimates that current total retail
sales into this market by the Company and its competitors are under $30 million.
The Company believes iontophoretic delivery of Dexamethasone provides
significant advantages over other current treatment regimens for acute local
inflammation. The Company believes iontophoresis eliminates many of the risks
and inconvenience associated with bolus steroid injections, avoids the systemic
side effects of oral steroids and eliminates the significant incidence of GI
tract side effects of orally
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administered NSAIDS. The Company believes iontophoresis also increases
therapeutic efficacy by bypassing metabolism by the liver, by reducing the
possibility of overdosing, and by providing localized delivery at the target
site without trauma. As a result, the Company believes that it may be
advantageous to introduce the iontophoretic delivery of Dexamethasone into the
initial treatment regimen for acute local inflammation. The Company believes
that earlier treatment with Dexamethasone has the potential to significantly
increase the rate of patient recovery and, in doing so, reduce the overall cost
of patient treatment.
Commercial Products. The Company pioneered the commercial introduction of
an iontophoretic drug delivery system for the treatment of local acute
inflammation in 1979. The product is used principally by physical therapists
(under a doctor's prescription) and has been administered in over 10 million
patient treatments for the iontophoretic delivery of Dexamethasone. More than 8
million of these treatments occurred since 1990, when advancements in electrode
technology made by the Company led to the introduction of its present family of
gel electrodes for use with its microprocessor controlled dose controller. The
Company's system for the delivery of Dexamethasone is also used by athletic
trainers and physical therapists serving a number of professional athletes,
including professional golfers and tennis players, men's and women's olympic ski
teams and professional football, basketball and hockey teams. The Company
believes that iontophoretic drug delivery systems are accepted in the
rehabilitation marketplace due to their ease of use, non-invasiveness,
recognized efficacy and lack of side effects.
The Company currently markets four different electrode kits in three
different configurations and continues to develop additional electrode kits and
configurations for application in different segments of the acute local
inflammation market. The Company's existing electrode kits, as well as those it
has under development, are designed to be user friendly and to offer clinicians
a broad range of electrode sizes, formats, configurations and price ranges.
Products Under Development. Currently, due to limited labeling of
Dexamethasone, neither the Company nor its competitors has the requisite
regulatory approval to specifically promote the use of iontophoretic drug
delivery systems for the delivery of Dexamethasone. The Company believes that
its inability to do so limits its ability to market its system, particularly to
the physician market. The Company further believes that to market iontophoretic
drug delivery systems for a specific drug and therapeutic indication the FDA
requires that each new drug/device combination be approved through an NDA
process. Therefore, in order to expand the Company's sales of its delivery
systems into the physician market as a first line treatment for acute local
inflammation, the Company has filed an investigational new drug ("IND")
application with the FDA under which it intends to establish the safety and
efficacy of its current drug delivery system for Dexamethasone. Upon completion
of the protocol design, the Company intends to select appropriate clinical sites
and initiate clinical studies in support of filing an NDA (or an appropriate
drug/ device combination marketing application seeking FDA approval to label a
formulation of Dexamethasone for use with the Company's Phoresor for treatment
of acute local inflammatory conditions. The Company believes that because of the
known safety and efficacy profile of Dexamethasone and the acute nature of the
conditions to be treated in these studies, the duration of the studies and the
required follow-up periods may not be as extensive as would be required for a
NCE. See "Risk Factors -- Uncertainty of Government Regulation."
The Company believes the approval of an NDA (if obtained) will allow the
Company to actively promote the iontophoretic delivery of Dexamethasone to
general and family practice physicians, orthopedists, neurologists and sports
and industrial medicine clinics. The Company believes this could significantly
enhance the Company's ability to establish its delivery system for Dexamethasone
as a primary treatment option for acute local inflammatory conditions. The
Company also believes that, with an approved NDA to complement its device, many
physicians who refer their patients for physical therapy will do so with a
specific prescription for iontophoresis using the Company's proprietary drug
delivery system.
LOCAL DERMAL ANESTHESIA
Medical care providers have long recognized the importance of the
management of pain, including pain associated with certain minimally invasive
medical procedures such as needle injections; venous access (including
phlebotomies and intravenous catherizations); lumbar punctures; and local
dermatological,
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gynecological and urological procedures such as wart and mole removal, LOOP/LETZ
procedures, biopsies (including fine needle, punch, excisional, shave and
cervical biopsies), Mohs procedures and vasectomies. To address this concern,
local dermal anesthetics are widely used in medical practice.
The primary means of administering local dermal anesthetics is by needle
injection, which has the benefit of being fast, effective and long lasting.
However, the fear and pain associated with the needle stick, especially on the
extremities or on other sensitive areas such as the face, vulva and cervix is
compounded by the sting associated with virtually all injectable local
anesthetics. These factors increase patient discomfort and anxiety. In addition,
the local tissue distortion which typically accompanies injections may cause
procedural difficulty for the physician. New topical analgesic formulations have
recently been introduced into the market and are gaining widespread acceptance,
especially in pediatric hospitals and clinics and in pediatric dermatology.
These topical formulations avoid many of the pitfalls of anesthetic injections,
but they generally require significant advance preparation since they require
one to two hours to obtain anesthesia. Even when topical formulations are given
adequate time to achieve anesthesia, they anesthetize only to a maximum depth of
3 to 5 mm. The time required to achieve therapeutic anesthesia and the depth of
anesthesia make these formulations less suitable or impractical for many
potential applications. The Company believes that the growing interest in these
products, in spite of their clinical limitations, is a positive indication of
the market's desire for an effective, needle-free local dermal anesthetic.
Commercial Products. The Company's Iontocaine brand of lidocaine HCl 2% and
epinephrine 1:100,000 is FDA approved under an NDA and is specifically labeled
for use with the Company's Phoresor and its proprietary, single use, disposable
electrode kits. The Iontocaine delivery system was shown to be safe and
effective in double blinded, placebo controlled, randomized studies in over 400
adult and pediatric patients. Based on these studies, the Company filed an NDA
with the FDA and received labeling to use the system for all procedures
requiring local dermal anesthesia.
Using the Company's product, clinicians can administer needle-free, long
lasting (up to two hours) local dermal anesthesia up to a depth of 10 mm in
approximately ten minutes. The Company believes the ability to provide painless
local dermal anesthesia up to three times deeper than topical formulations, in
85% less time, could make the Company's products a preferred drug delivery
method for many existing applications where topical anesthetic creams are
currently employed, and that the product will provide a means of painlessly
inducing local dermal anesthesia for a broader range of medical procedures where
the use of such creams is not practical.
A leading concern among patients, parents and health care professionals is
the control of pain in the practice of children's medicine, including the pain
associated with needle insertions. With the growing acceptance of topical
anesthetic creams in the pediatric hospital setting, the Company believes there
is a large potential market for an iontophoretic drug delivery system targeted
toward pediatrics. Accordingly, the Company has focused its initial local dermal
anesthesia product launch into the pediatric market under the brand name Numby
Stuff. Numby Stuff, which the Company launched in January of 1997, currently
consists of the Phoresor, the Company's line of proprietary, single use,
disposable electrode kits and Iontocaine, all in a brightly colored, child
friendly product package. Numby Stuff is currently being used to induce local
dermal anesthesia prior to pediatric intravenous starts, blood draws and other
invasive procedures, and the Company believes it provides a cost effective
alternative to the leading topical product. The Company estimates that pediatric
intravenous starts, blood draws and other invasive procedures are performed more
than 20 million times in the United States each year.
At the Company's request, Numby Stuff was recently reviewed by the new
product review committee of the Alliance of Children's Hospitals ("ACH"), a
consortium of 36 free standing children's hospitals in the United States.
Following the review, in December 1996, the Company acquired a right from ACH to
use ACH's Seal of Acceptance in the commercialization of Numby Stuff. In order
to use the Seal of Acceptance to promote Numby Stuff, the Company was required
to make royalty payments to ACH. The Company satisfied ACH's royalty
requirements by issuing ACH warrants to acquire, through December 1, 2003,
44,791 Common Shares at an exercise price of $8.88 per share. In connection with
obtaining the rights to use the ACH Seal of Acceptance, and at the request of
the Child Health Investment Corporation ("CHIC"), an
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affiliate of ACH, the Company sold CHIC 37,202 Common Shares for $250,000. CHIC
maintains a venture fund to make investments in medical products companies.
Under the terms of the Company's agreements with ACH, ACH is obligated to
provide continued support and endorsement for Numby Stuff and, although ACH's
member hospitals are not required to purchase any product awarded ACH's Seal of
Acceptance, ACH is obligated to assist the Company in introducing Numby Stuff to
pharmacy directors and other clinical specialties within its member hospitals.
Products Under Development. The Company has developed a working prototype
of a preprogrammed, fixed dose, dose controller with push-button operation for
use as part of the Numby Stuff product. The Company is currently working with
its third party supplier to develop manufacturing specifications for the new
dose controller, and expects to initiate manufacturing and marketing of the dose
controller in fiscal 1998. The Company believes that the new dose controller's
anticipated pricing and simplified operation will further enhance the
marketability and use of Numby Stuff.
In order to achieve greater market acceptance of its Iontocaine product in
pediatric markets, the Company supports evaluations conducted by doctors and
other medical personnel for the use of its anesthetic product prior to a wide
variety of painful medical procedures. The Company is currently conducting or
planning two studies evaluating the use of Numby Stuff prior to lumbar punctures
and circumcisions in pediatric patients. Depending on the results of these
studies, the Company may develop new electrode kits which specifically address
these opportunities. The Company also believes, in addition to the pediatric
market, the adult hospital market represents additional opportunities for
growth. The Company believes that it could service the adult hospital market by
making minor modifications in its product image and by using its existing sales
force. For example, according to published studies, there are over 250 million
venous catheters inserted each year, of which a large percentage are inserted in
adult patients.
The Company also believes Iontocaine, together with the Phoresor and
adaptations of its existing electrode designs, can be successfully used to
induce effective local dermal or mucosal anesthesia prior to certain
gynecological procedures. The Company believes the effective, rapid, painless,
needle-free anesthesia provided by the Company's drug delivery technology would
increase patient comfort. In general, the Company believes the promotion of the
Company's systems for use in connection with gynecological procedures involving
mucosal membranes would require additional FDA approval, most likely in the form
of a supplement to the Company's existing Iontocaine NDA. The Company does not
believe gynecological procedures involving the vulva would require additional
FDA approval. The Company has performed preliminary studies which indicate that
its anesthetic system may significantly reduce or eliminate the pain of vulvar
biopsies. The Company has already tested prototype electrodes which are
specifically designed for this application. There are approximately 50 million
pap smears performed each year in the United States, of which the Company
estimates approximately 2.5 million require follow-up procedures that could
benefit from non-invasive local dermal anesthesia. The majority of these
procedures are performed by a relatively small number of gynecologists who are
mainly located in high density population areas that are also the major centers
for the Company's pediatric marketing efforts. See "Risk Factors -- Uncertainty
of Government Regulation."
REMISSION OF PRE-TERM LABOR
Pre-term birth is a leading cause of neonatal morbidity and mortality. Each
year in the United States alone, 10% of all births are premature resulting in
more than 400,000 babies being born before completing 37 weeks of gestation. The
cost of neonatal intensive care required for pre-term babies exceeds $5.0
billion a year in the United States. The Company believes prolonging pregnancies
threatened by pre-term delivery by even a few days may result in improved
clinical outcomes, which could represent an important opportunity for
significant medical, economic and social benefits.
The Company estimates that each year a significant number of patients in
the United States who are at risk for or experience pre-term labor and pre-term
birth are placed on one or more forms of tocolytic drug therapy. Tocolysis is
the clinical term for the remission of labor. Although many of these therapies
are not specifically FDA approved, the medical literature indicates that they
have been successful in a large number of patients. The Company believes the
number of patients placed on various tocolytic drug therapies will rise
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with the increased use of ambulatory external tocodynamometers and the advance
of other new diagnostic techniques and products used to identify patients at
risk. These advances in diagnostics should aid in identifying asymptomatic
pregnant women.
A typical therapeutic program for a pregnant woman who is experiencing
acute episodes of pre-term labor consists of intravenous ("IV") infusions of
magnesium sulfate in the hospital. After a period of 12 to 24 hours of
successful tocolysis, the patient is then switched to oral terbutaline sulfate
tablets and released. Usually, after two to three weeks, the therapeutic effects
of oral terbutaline are lost and the patient must be readmitted to the hospital
to begin the treatment cycle again. If symptoms persist, the patient is often
placed on an injectable form of terbutaline sulfate by means of a subcutaneous
infusion pump. Although not approved by the FDA for this indication,
subcutaneous infusion terbutaline therapy has been found to be effective in
controlling pre-term labor and avoiding the loss of therapeutic efficacy
experienced with oral dosing. Subcutaneous infusion terbutaline therapy can last
for a over a month, with a mean treatment period of approximately three weeks,
and costs approximately $1,500 to $2,000 per week. Those costs include pump
rental, drugs, disposable infusion kits and central monitoring and home visits
by a skilled medical professional.
Products Under Development. The Company is evaluating a system for
delivering terbutaline using iontophoresis. Based on in vitro feasibility
testing it has conducted, the Company believes terbutaline may be delivered by
iontophoresis in therapeutic quantities. The Company intends to seek NDA
approval for the delivery of terbutaline for remission and pre-term labor using
its iontophoretic drug delivery system. It has prepared a protocol for a Phase I
blood level study, has received Institutional Review Board approval and expects
to initiate that study by the end of 1997. The Company believes that an
iontophoretic drug delivery system for terbutaline could offer an alternative
treatment regimen to oral terbutaline therapies with all of the benefits of home
infusion therapy. The Company also believes an iontophoretic system may have
substantial advantages over subcutaneous infusion therapy, including being less
expensive to produce and service than standard infusion therapy devices,
potentially providing greater patient comfort (since the electrodes could be
placed at various sites on the body) and being non-invasive, thereby eliminating
the risk of infection and reducing the need for frequent intervention by a
skilled medical professional.
Since the general pharmacology and toxicology of terbutaline are well
known, and because the Company believes this is an area of significant interest
within both the FDA and the medical community, the Company believes that, if its
Phase I blood level studies are successful, it may be able to progress more
rapidly into Phase III studies in at-risk, pregnant women than would be possible
for an NCE. Due to the nature of the condition being treated, the Company
believes the clinical trials should be of relatively short duration and will
have a clearly defined endpoint. See "Risk Factors -- Uncertainty of Government
Regulation."
CONSCIOUS SEDATION
Many patients, especially children, experience extreme anxiety before the
start of invasive or painful medical procedures, during stressful diagnostic
tests such as endoscopies, magnetic resonance imaging, and CT scans, and before
and during certain dental and emergency room procedures. Invasive methods of
premedication and sedation, such as intramuscular ("IM") injections or IV
administration of analgesics or sedatives, can cause anxiety. Clinicians have
long sought alternative, non-invasive methods of premedication. Despite the
absence of approved labeling for safety and efficacy for oral administration,
clinicians widely use injectable drugs and drug combinations mixed with flavored
syrups for off-label oral administration in children. Since 1994, clinicians
have also been able to use fentanyl for conscious sedation using an oral
transmucosal delivery system. Oral administration may require up to five times
the amount of drug recommended for injection because of decreased
bioavailability, but is used because the alternative of IV or IM injections are
counterproductive to the goal of relieving anxiety. Based on market data, the
Company estimates that annual worldwide sales of the top two products used for
conscious sedation are approximately $950 million.
Products Under Development. The safety and efficacy of fentanyl as a drug
to induce conscious sedation are well known. Data from two human blood level
studies with fentanyl conducted by the Company and a former collaborative
partner show that it may be possible for therapeutic quantities of fentanyl to
be delivered
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by iontophoresis. Therefore, the Company believes it could represent a viable
drug for inducing conscious sedation using the Company's iontophoretic drug
delivery systems. As a result of an existing contractual obligation with its
former collaborative partner, the Company has agreed not to pursue development
of a fentanyl conscious sedation product until the second quarter of calendar
year 1998. Further, the Company's ability to market a product in the United
States using fentanyl may also be limited by certain litigation now before the
PTO. See "Risk Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Collaborative Relationships and Licenses."
PAIN MANAGEMENT
The Company estimates that of the 24 million surgeries performed each year
in the United States, 75%, or 18 million, result in moderate to severe post
operative pain. In addition, there are currently 9.1 million cancer patients in
the United States. Each year roughly 6.6 million patients with cancer are
treated for pain and of these 65% to 80%, experience moderate to severe pain. In
recent years, there has been a growing awareness that many patients, especially
the terminally ill, do not receive adequate analgesic therapy for their pain.
Sales of prescription narcotics in the United States to treat pain were
approximately $1.0 billion in 1996 and according to market reports the market is
estimated to grow at a rate of approximately 10.5% per year. Factors
contributing to this growth rate include more relaxed policies for narcotic
administration and the introduction of drug delivery systems that make
administration safer, more controllable and convenient.
Morphine is the most commonly prescribed drug for the management of severe
pain in critically ill patients in the United States. Morphine and hydromorphone
are the most widely used parenteral pain medications for home use because they
are relatively safe, effective and have relatively short half lives.
Hydromorphone is a more potent, highly soluble analog of morphine, which is the
standard against which other analgesics are generally measured.
The Company believes that iontophoretic delivery systems for narcotic
analgesics for the treatment of post operative and chronic pain control could
offer significant benefits over existing methods of delivery, including infusion
pumps, transdermal patches and transmucosal products. To provide effective pain
relief, a morphine injection is generally administered every four hours.
Repeated injection or continuous infusion of morphine is expensive because the
methods of administration consume substantial hospital staff time or require
daily visits by a health care provider to a patient receiving home infusion
therapy. An iontophoretic system has the potential to offer all of the benefits
of an infusion pump, including the ability to closely match the delivery profile
with rapid onset and cessation of action characteristics and to provide control
of baseline delivery with bolus dose capability for acute episodes of pain, but
without the need to use needles. The Company believes an iontophoretic delivery
system for pain management may also be more convenient and less expensive, since
the rental of costly infusion pumps and intervention by a skilled medical
professional may not be required. Passive transdermal patches offer convenience
and reduced costs, but they take four to eight hours before effective analgesia
is achieved and take hours or even days for the drug depot to clear from the
skin after the patch is removed. In addition, passive transdermal patches do not
offer precise baseline dosing from patient to patient and do not address the
need for bolus dosing required to address acute episodes of pain.
Products Under Development. The Company believes an iontophoretic delivery
system for hydromorphone may be a favorable alternative to the administration of
morphine by infusion for acute post operative pain and for chronic pain in the
hospice or home care setting. Hydromorphone is approximately ten times more
potent than morphine and has added therapeutic advantages, including lower
incidence of nausea and vomiting (which frequently accompanies the
administration of morphine), and more effective analgesia with no stupefying and
minimal hypnotic effects. Through the Elan Agreements, the Company obtained
rights to prototype wearable iontophoretic drug delivery systems for the
delivery of hydromorphone and to the preclinical, Phase I and limited Phase II
clinical data generated by Elan in testing the device. The Company believes the
additional clinical trials necessary to market this product may be of relatively
short duration in comparison to an NCE, since hydromorphone's safety and
efficacy profile is well known and the clinical endpoints are both well
established and easy to measure. See "Risk Factors -- Uncertainty of Government
Regulation."
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In addition to a system for the delivery of hydromorphone, the Company
believes a market exists for an iontophoretic drug delivery system for fentanyl,
a narcotic analgesic more potent than hydromorphone, which has been used
primarily during surgery. The Company conducted a preliminary blood level study
using fentanyl and, using data from that study, designed advanced electrodes
which a former collaborative partner used in a subsequent fentanyl human blood
level test. These studies demonstrated that fentanyl can be delivered by
iontophoresis to achieve the delivery rates and blood levels necessary for pain
control.
Due to its short half-life in the body, injectable fentanyl is not
generally used for the treatment of moderate to severe post-operative or chronic
pain. However, the increased use of home infusion therapy and the development of
a passive transdermal patch have demonstrated that fentanyl can be delivered at
therapeutic levels, making the drug suitable for new indications not previously
possible with injections. The Duragesic transdermal fentanyl patch, which was
developed by Alza and is marketed by Janssen Pharmaceuticals, was introduced in
1992 and had annual worldwide sales of $205 million in 1996.
As a result of an existing contractual obligation with its former
collaborative partner, the Company has agreed not to pursue development of a
fentanyl pain product until the second quarter of calendar year 1998. Further,
the Company's ability to market a product using fentanyl in the United States
may be limited by certain litigation before the PTO. See "Risk
Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Collaborative Relationships and Licenses."
OSTEOPOROSIS
Osteoporosis is a progressive disease that affects more than 25 million
people in the United States, most commonly post-menopausal women. The financial
costs associated with osteoporosis exceed $10 billion each year. Novartis and
the Company believe the overall therapeutic profile of the osteoporosis drug
currently under development may be optimized or enhanced through the use of an
iontophoretic drug delivery system. As a result, they have entered into an
agreement for the development by the Company of an iontophoretic drug delivery
system using the drug for the treatment of osteoporosis. The drug is currently
scheduled to enter Phase I clinical trials in 1998. See
"Business -- Collaborative Relationships and Licenses."
OTHER POTENTIAL PRODUCT APPLICATIONS
The Company has an active program of identifying and developing
iontophoretic drug delivery products for various therapeutic indications where
the Company believes there is a potential market need, where a suitable
water-soluble ionic drug is available and where that drug can be delivered
through iontophoresis in therapeutic quantities on a cost-competitive basis. The
Company has identified certain drugs and therapeutic indications as potential
product opportunities, and has undertaken preliminary steps toward verifying the
market need and technical feasibility of iontophoretic delivery of those drugs.
In addition, through the Elan Agreements, the Company acquired certain
in-process research and development, including exclusive world-wide rights for
the commercial exploitation of certain iontophoretic patents, know-how and
clinical data. The Elan technology includes in vitro feasibility studies
conducted on 64 drugs (including several peptide drugs), in vivo blood level
animal studies on 18 of those drugs and human blood level studies on nine of
those drugs. See "Business -- Products and Products Under
Development -- Osteoporosis."
As part of its continuing product development program, the Company will
evaluate the feasibility of iontophoretic delivery of biotechnology derived
peptides, small proteins and oligonucleotides for applications where existing
drug delivery systems have significant limitations. The Company also intends to
examine the use of its iontophoretic system to deliver anti-emetics to treat
postsurgical nausea and vomiting induced by or secondary to chemotherapy,
surgery, migraine headache or AIDS.
COLLABORATIVE RELATIONSHIPS AND LICENSES
A principal component of the Company's commercial strategy is to develop
products, where appropriate, in collaboration with established pharmaceutical
companies or other strategic partners. These collaborative partners may provide
proprietary drugs, technology, financial resources, research and pharmaceutical
manufacturing capabilities or marketing infrastructure to aid in the development
and commercialization of the
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Company's products and potential future products. Depending on the availability
of financial, marketing and scientific resources and other factors, the Company
may also license or cross license its technology or products to others and
retain profit sharing, royalty, manufacturing, co-marketing, co-promotion or
similar rights. Any such arrangements could limit the Company's flexibility in
pursuing alternatives for the development or commercialization of its products.
The Company has entered into the following collaborative relationships and
license arrangements:
Novartis Agreement. In July 1995 as amended in March 1996, the Company
entered into various research and development agreements (the "R&D Agreements")
with the ethical pharmaceuticals division of Ciba-Geigy Corporation ("Ciba") to
evaluate the feasibility of delivering a number of Ciba compounds for several
therapeutic applications utilizing the Company's iontophoretic drug delivery
technologies, including certain of its existing iontophoretic devices. In
connection with the R&D Agreements, the Company formed Dermion to conduct the
Company's iontophoretic drug delivery research and development activities other
than those relating to the Company's current products, and Ciba then acquired a
20% equity interest in Dermion. In 1997, Ciba was merged with Sandoz Corporation
to form Novartis Pharma A.G.
Under the 1997 Amendments, effective November 1, 1997, Novartis exchanged
its 20% equity interest in Dermion for 238,541 Common Shares and warrants to
acquire an additional 18,750 Common Shares at an exercise price of $21.60 per
share. Novartis may currently exercise one-third of the warrants, and will
obtain the right to exercise an additional one-third of the warrants in each
instance, when it agrees to provide research and development funding at a
minimum level of $1.5 million per year under the R&D Agreements for each of the
calendar years 1999 and 2000. The warrants, once exercisable, may be exercised
at any time through November 1, 2002.
In connection with the R&D Agreements, the Company and Dermion granted
Novartis perpetual non-exclusive, royalty bearing licenses to the Company's
iontophoretic technology. Further, other than in collaboration with Novartis,
the Company has agreed that, during the term of the agreement (and, under
certain circumstances, for a period of up to two years thereafter), the Company
will not develop any product in certain Novartis fields, as defined in the
agreement, without Novartis' consent.
Pursuant to the R&D Agreements, as amended, Novartis will provide Dermion
with research funding through December 31, 1998 for the continued development of
proprietary iontophoretic drug delivery systems to deliver Novartis compounds
and has the option to renew the research and funding for successive one year
periods. Presently, Dermion is devoting the majority of its research and
development efforts to the development of these systems and products for
Novartis compounds. One of the compounds covered by the R&D Agreements is
scheduled to enter Phase I clinical trials during 1998. The R&D Agreements may
be terminated by Novartis or the Company at any time on at least six months'
notice.
The R&D Agreements, as amended, require Novartis to pay Dermion milestone
payments in connection with products developed for Novartis by Dermion, based on
the successful completion of certain later stage development objectives.
Additionally, Novartis is required to pay Dermion royalties on sales by Novartis
of products and systems developed by Dermion. No such sales have yet occurred
and no royalties have been received by Dermion.
The Company has also agreed that, during the term of the agreement with
Novartis and for a period of five years thereafter, the Company will negotiate
in good faith to license to Novartis rights to any iontophoretic drug delivery
technologies developed or acquired by the Company but which are not covered
under the existing license agreements (the "Second Generation Technology").
Further, the Company has agreed to negotiate such additional licenses prior to
entering into any agreement to license or otherwise transfer any rights to such
Second Generation Technology to a third party. Under the 1997 Amendments, the
parties agreed to treat the Elan technology acquired by the Company as Second
Generation Technology. Accordingly, the Company intends to negotiate with
Novartis to license such technology to Novartis prior to initiating efforts to
negotiate any rights to such technology with any third party. Under the R&D
Agreements, as amended, the parties agreed that they will jointly own the
technology developed in the collaboration.
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The Company's agreements with Novartis contain contractual restrictions on
any change of control of Dermion (either through the sale of IOMED's stock in
Dermion or through the sale by Dermion of its securities, assets or business).
Through March 1998, any such change of control is prohibited and, during the
remaining term of the R&D Agreements, and for one year thereafter, Novartis has
a right of first offer to purchase Iomed's interest in Dermion or the assets of
Dermion in the event of any proposed change of control of Dermion. The right of
first offer does not extend to any overall change of control transaction
involving IOMED, such as the sale by IOMED of its securities or assets, or a
merger or consolidation. See "Risk Factors -- Reliance on Collaborative
Partners."
Elan Agreements. Effective March 1997, the Company entered into the Elan
Agreements. Under the Elan Agreements, the Company acquired exclusive, worldwide
licenses to certain of Elan's iontophoretic drug delivery technologies,
including know-how and over 250 issued and 47 pending United States and foreign
patents. In exchange for those rights, the Company paid Elan $15.0 million
through the issuance to Elan of the Elan Notes, issued Elan warrants to
purchase, through December 1, 2003, 104,166 Common Shares of the Company at a
price of $21.60 per share, and agreed to pay Elan a royalty on net revenues
derived by the Company from the licensing or sale of its products. See
"Transactions Related to the Offering" and "Certain Transactions."
Alza Agreement. Alza has developed competitive iontophoretic drug delivery
technology and is, by its published reports, undertaking to develop products
that may be competitive with the Company's products. As a result of the
uncertainty of the Company's and Alza's respective patent rights for certain
iontophoretic delivery technologies, in 1993, the Company entered into a
cross-license agreement with Alza. Under the agreement, the companies, among
other things, exchanged non-exclusive, royalty free rights to certain patented
technologies which each party believed to be of significant strategic importance
to the potential technological success of many iontophoretic drug delivery
applications. One patent sublicensed by Alza to the Company under the agreement
bears a nominal royalty rate if used. Both parties are prohibited from assigning
their rights under the agreement to certain named companies or any other entity
that derives more than 50 percent of its income from the development, licensing
and/or sale of drug delivery systems to other pharmaceutical companies without
first receiving the consent of the other party. Restrictions imposed on the
Company's ability to assign its rights under this agreement may have the effect
of prohibiting a sale of the Company to such named companies, or may otherwise
limit the Company's ability to capitalize on the commercial and other economic
potential of these technologies. The Company does not believe these restrictions
inhibit its existing business development strategy. See "Risk
Factors -- Anti-Takeover Provisions of the Company's Articles of Incorporation;
Utah Law and Certain of the Company's Agreements."
University of Utah Agreement. In 1974, the Company entered into a licensing
agreement with the University of Utah Research Foundation (the "University").
Under the agreement, which was amended in 1993, the Company obtained an
exclusive license to certain iontophoretic drug delivery and prosthetic
technologies developed at the University. Under the terms of the amended
license, the Company is obligated to pay the University a royalty on all sales
of its iontophoretic drug delivery products through the year 2007. In December
1996, the Company sold the assets comprising its prosthetic technologies
operations to Fillauer, Inc. and, in connection with that sale, sublicensed its
rights in the prosthetic technologies covered by the license to Fillauer, Inc.
Fillauer Agreements. Prior to January 1997, the Company provided
state-of-the-art prosthetics products to amputees throughout the United States,
Canada and Western Europe through its Motion Control division. Motion Control's
principal products were the Utah Artificial Arm and the ProControl II advanced
myolectric prostheses for above and below the elbow amputees.
In December 1995, the Company sold the assets of its prosthetics
technologies operations to Fillauer, Inc. for $1.0 million and granted Fillauer
an exclusive, worldwide license and sublicense to the patents, trademarks,
know-how and other intellectual property of the Company relating to its
prosthetics products. Under the terms of the sublicense agreement, the Company
will receive license fees and royalties on future sales of such products.
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Laboratoires Fournier Agreement. In July 1993, the Company entered into an
agreement with Laboratoires Fournier, a private French pharmaceutical company,
for the joint research and development of wearable integrated iontophoretic
systems, with primary effort devoted to the development of systems for the
treatment of acute post operative pain and patient controlled analgesia. The
companies subsequently concluded that certain United States patents issued to
Alza for the iontophoretic delivery of fentanyl and its analogs after the
Company and Laboratoires Fournier had entered into their agreement posed a
potential barrier to the commercial viability of the proposed system in the
United States. As a result, the Company elected to suspend development efforts
in the area. In February 1996, the parties terminated their collaborative
research and development activities and amended their initial agreement. In
connection with the termination of their collaborative efforts the Company
issued Laboratoires Fournier 337,837 Common Shares in satisfaction of a $3.0
million loan Laboratoires Fournier had made to the Company. Under the amended
agreements, both companies have rights to all jointly developed iontophoretic
technologies and know-how, and Laboratoires Fournier has a limited non-exclusive
license to the Company's previously existing proprietary iontophoretic
technologies. The Company also agreed not to pursue development of delivery
systems for systemic pain control, including conscious sedation and pain
management, for a two year period ending February 1998.
Boston University Agreement. In December 1997, the Company acquired a
non-exclusive, fully-paid, perpetual, non-royalty bearing license to certain
iontophoretic drug delivery technology developed by Boston University. The
agreement also provides the Company with the right to sublicense the technology
upon the payment of a sublicense fee.
MANUFACTURING
The Company manufactures, tests, inspects, packages and ships its products
from an approximately 18,000 square foot leased manufacturing facility located
in Salt Lake City, Utah. The Company's manufacturing activities primarily relate
to its manufacture of electrode kits. The Company does not manufacture or
repackage any drugs or compounds used in its delivery systems and outsources the
manufacture and assembly of its Phoresor dose controllers.
The Company and certain of its suppliers are required to comply with FDA
regulations governing manufacturing practices, including the Quality System
Regulation, which mandate controls for product design, control and quality. The
Company believes it is in compliance with the Quality System Regulation. The
Company recently received its ISO 9001 and CE Mark certifications, which are
standards imposed by certain European countries on drug and medical devices
manufacturers. The Company has good manufacturing practices audits conducted on
a regular basis.
Manufacture of Electrodes. The Company's iontophoretic drug delivery
electrode kits are manufactured and assembled using several proprietary
materials, processes and production technologies developed by the Company in
conjunction with its equipment and material suppliers. The Company assembles its
electrodes from internally manufactured components and outsourced components
that are manufactured by third parties to the Company's specifications. Each of
the Company's existing electrode kits is assembled on a separate production
line. The key components of the Company's electrodes are the rehydratable drug
containment pads (which use either the Company's multi-laminate hydrogel or its
gel sponge technologies), and silver and silver/silver chloride conductive
elements.
The Company manufactures the rehydratable drug containment pads used in its
electrodes. These pads are manufactured, using the Company's proprietary
processes, from multiple layers of a polymer material or from a sponge material
impregnated with a hydrogel. The silver and silver/silver chloride conductive
elements used in the Company's electrodes are manufactured for the Company to
its specifications by a third party. The Company has manufactured internally all
of the electrodes it has sold, and believes its electrode manufacturing capacity
can be expanded to meet its needs for the foreseeable future.
The Company has adopted a "team" approach on its electrode assembly lines
and, by changing the production flow process and automating certain production
steps, was able to reduce manufacturing personnel from 70 in 1992 to 26 persons
in 1997, thereby reducing per unit production costs while increasing product
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lines and production levels. The Company intends to use a portion of the
proceeds of the Offering for capital equipment to further automate the assembly
and packaging of the Company's electrodes, to increase capacity and to reduce
costs. See "Use of Proceeds."
Manufacture of Dose Controllers. The Company's patented Phoresor
iontophoretic dose controllers employ a variety of sub-assemblies and components
that are designed or specified by the Company, including certain
microprocessors, circuit boards, on-board software, electrical lead wires and
control panels. These components and subassemblies are typically manufactured
for the Company by third parties, which then ship them to a contract
manufacturer for final assembly, testing and inspection in accordance with the
Company's specifications. The Company's manufacturing activities for the
Phoresor dose controllers are limited to design, labeling, inspection and
packaging.
The Company's second and third generation dose controllers are in various
stages of design, research, and development and may require additional clearance
or PMA approval from the FDA prior to marketing. The Company, alone or in
conjunction with its development partners, will design the products and, in
combination with its suppliers, will manufacture and assemble prototypes and
clinical quantities. Upon completion of the design, specifications and testing,
the Company intends to subcontract the manufacture and assembly of all
commercial quantities of its dose controllers to electronics companies that
specialize in such work. See "Risk Factors -- Uncertainty of Government
Regulation."
The Company purchases certain components and materials used in its products
from single source suppliers pursuant to existing purchase orders and
agreements. See "Risk Factors -- Dependence on Single Sources of Supply."
SALES AND DISTRIBUTION
The Company's marketing strategy is to position its proprietary
iontophoretic drug delivery products in the marketplace as the preferred means
of drug delivery for a wide range of drugs. The strategy employs the use of
multiple sales and distribution channels, including (i) a network of medical
supply dealers; (ii) a direct sales force; and (iii) collaborative marketing
partners. The Company intends to use these distribution channels, both singly
and, for certain products, in combination, to maximize the Company's marketing
resources.
Local Inflammation Products. The Company has historically targeted its
sales efforts for its drug delivery system for acute local inflammatory
conditions to the rehabilitative medicine, physical therapy and related
specialty markets. The Company employs a nationwide distribution network
consisting of approximately 50 durable medical equipment and physician supply
dealers to sell and distribute its products in those markets. This dealer
network is supported by the Company's six regional sales managers and four
internal customer service representatives. In addition to the Company's sales
and distribution efforts for its local inflammation products in the United
States, it maintains marketing and sales activities in international markets,
including Europe, Scandinavia, Australia, South Korea, Singapore and Hong Kong.
These sales are made primarily through independent distributors operating in
those countries.
The Company intends to expand its marketing efforts by expanding and
improving its existing product lines and expanding its sales and distribution
capabilities into new segments of the inflammation market (including the
podiatry, chiropractic and primary care physician markets) through the use of
additional specialty dealers. In order to enhance its marketing efforts, the
Company is pursuing an NDA for its acute local inflammation drug delivery system
for Dexamethasone. The Company believes an NDA, if approved, will allow it to
actively promote this product and will enhance the Company's ability to
establish the Dexamethasone product as a primary treatment option for acute
local inflammation conditions.
Local Dermal Anesthetic Products. In 1997, the Company launched an
iontophoretic drug delivery system for Iontocaine. The Company has initially
targeted its sales efforts for the product in the pediatric hospital market
under the name Numby Stuff. In order to access this market, the Company intends
to hire a direct sales staff of approximately 40 persons over the next four
years to market Numby Stuff. To date, the Company has hired and trained seven
sales agents, and intends to hire and train the remaining 33 sales
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representatives by the end of 1999. There can be no assurance the Company will
be able to recruit and hire such personnel successfully within such time frame,
or at all. The Company also intends to expand its marketing efforts for its
Iontocaine products for other applications and to the general physician office
and international markets through the use of collaborative marketing partners.
In addition, under the terms of the Company's agreements with ACH, ACH has
agreed to assist the Company in introducing Numby Stuff to pharmacy directors
and other clinical specialties within ACH member hospitals. ACH has also agreed
to provide the Company with other marketing and sales assistance, including
access to certain marketing data developed by ACH.
Products Under Development. The Company is developing a number of
iontophoretic drug delivery systems for other therapeutic indications, including
remission of pre-term labor, conscious sedation, post operative and chronic pain
control and osteoporosis. If any of these products is successfully developed and
approved by the FDA, the Company would market those products in the hospital
market through its direct sales force and to the physician office, international
and other specialty markets through one or more collaborative marketing
partnerships.
PATENTS AND PROPRIETARY RIGHTS
The Company's iontophoretic drug delivery technologies include patents,
trademarks, trade secrets and other proprietary know-how. These technologies are
used in various combinations in the testing, evaluation and formulation of
optimal ionic drug solutions and in the research, development, design and
manufacture of microprocessor controlled power supplies and iontophoretic
electrodes which are specifically designed and constructed for particular
therapeutic applications.
The Company has implemented a policy of actively patenting and maintaining
as trade secrets and proprietary information all inventions and technologies
which it believes are important to its business operations. The Company
generally seeks patent protection for its key proprietary technologies and
technological products in the United States, Canada, Europe and Japan. The
Company also relies on a number of trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. The Company's patent committee meets regularly to
review and make recommendations to the Company's management regarding patent and
invention issues.
As of October 1, 1997, the Company held or had rights to utilize 60 United
States patents and 245 foreign patents relating to its iontophoretic drug
delivery technology, and has (or has the rights to utilize) 15 pending patent
applications in the United States and 47 pending patent applications in foreign
countries for that technology. The Company also owns or has licensed rights to
three issued and one pending United States patent governing the design and
manufacture of certain myoelectric prosthetic devices, including the Utah
Artificial Arm, which it has sublicensed to a third party in connection with the
sale of the Company's Motion Control division in December 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The medical products industry has recently seen extensive litigation
regarding patents and other intellectual property rights. Intellectual property
litigation is expensive and time consuming and, if decided adversely to a party,
can result in substantial loss or diversion of revenues for, and could have a
material adverse effect on the business operations of, the losing litigant.
There can be no assurance the pending patent applications filed by the Company
will be approved by appropriate governmental agencies, or that the Company's
issued or pending patents will not be challenged or circumvented by its
competitors. There can also be no assurance the Company will not become a party
to intellectual property right litigation and its concomitant adverse effects.
Further, there can be no assurance infringement claims will not be asserted by
other parties in the future against the Company, or that, in such event, the
Company would prevail or be able to obtain licenses on reasonable terms if it
did not prevail in those infringement claims. Adverse determinations in any
litigation could subject the Company to significant liabilities and/or require
the Company to obtain licenses from third parties. If the Company is unable to
obtain necessary licenses or is unable to develop or implement alternative
technology, it could be unable to manufacture and sell the affected products.
Any of
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these outcomes could have a material adverse effect on the Company's business
financial condition and results of operations.
In August of 1993, the PTO issued a patent to Alza relating to the
iontophoretic delivery of fentanyl. Alza's subsequent patent request in Europe
has been denied, and its United States patent was reexamined by the PTO. In the
reexamination, all of the substantive claims that Alza made in the original
patent relating to fentanyl and its analogs were denied. Alza has appealed the
PTO's decision and, as a result, there can be no assurance Alza will not regain
its patent position. If Alza is successful in its appeal of the PTO's decision,
and if the Company proceeds in the development of an iontophoretic fentanyl
product, the Company may be required to obtain a license from Alza Corporation
to market an iontophoretic drug delivery system for fentanyl in the United
States. There can be no assurance the Company would be able to obtain a license
on terms which are acceptable to the Company, if at all. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."
In addition to its patented technology, the Company relies on trade
secrets, technical know-how and continuing invention to maintain its competitive
position and products. The Company works actively to foster continuing
technological innovation by its employees and consultants in order to maintain
its competitive position, and has taken security measures to protect its trade
secrets and periodically explores ways to further enhance its trade secret
security. The Company requires each of its employees and consultants to execute
an intellectual property and invention agreement. The agreement generally
provides that all inventions, designs, formulas, works of authorship,
compositions of matter and discoveries made, conceived of or developed by the
individual and all confidential information disclosed or made know to the
individual during the term of his or her relationship with the Company will be
assigned to and remain the exclusive property of the Company and that it will be
maintained as confidential and not disclosed to third parties at any time except
under specified circumstances. The agreements also prohibit the employee or
consultant from directly or indirectly competing with the Company during the
term of their relationship with the Company and from recruiting the Company's
employees on behalf of competitors after the termination of that relationship.
There can be no assurance these measures will provide adequate protection for
the Company's trade secrets or other proprietary information. There can also be
no assurance the Company's competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets.
The Company engages in a number of collaborative relationships with third
parties. Under the terms of these relationships, the Company has agreed to act
as the licensor or licensee of certain technology and to engage in a number of
research and development activities relating to that technology or to the
development of iontophoretic drug delivery systems. Under these arrangements,
Alza and Laboratoires Fournier have obtained licenses to certain of the
Company's proprietary iontophoretic technologies. These companies will compete
with the Company for contracts with collaborative partners and are independently
developing iontophoretic drug delivery systems that will compete directly with
many of the products currently being developed by the Company. See "Risk
Factors -- Reliance on Collaborative Partners," "Business -- Collaborative
Relationships and Licenses" and "Business -- Competition."
GOVERNMENT REGULATION
The research, development, manufacture, and marketing of both drugs and
medical devices, including the Company's iontophoretic drug delivery systems,
are subject to extensive regulation by the FDA in the United States and by
comparable authorities in other foreign countries. These national agencies and
other federal, state and local entities regulate, among other things, research
and development activities and the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising, promotion and
reporting requirements related to product injury of the Company's products. The
regulations applicable to the Company's products may change as the presently
limited number of approved iontophoretic drug delivery products increases and
regulators acquire additional experience in this area. The FDA has broad
authority to enforce the medical devices and drug regulations and laws, and
noncompliance can result in a variety of regulatory responses ranging from
warning letters and mandatory product recalls to civil or criminal actions and
penalties. See "Risk Factors -- Uncertainty of Government Regulations."
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The Company's iontophoretic drug delivery products involve a medical device
component, thereby subjecting such products to compliance with the FDA's
regulations governing medical devices. Where such medical devices are labeled
for use with a specific pharmaceutical product for a specific therapeutic
indication, they are subject to the FDA's regulations governing both medical
devices and pharmaceutical products. The Company believes that most, if not all,
of its future iontophoretic drug delivery systems will involve a pharmaceutical
component or specific labeling for use with a pharmaceutical product.
Products regulated as medical devices may not be commercially distributed
in the United States unless they have been cleared or approved by the FDA, or
unless they are otherwise exempted from the FDA's regulations. Currently, there
are two methods for obtaining FDA clearance or approval of medical devices.
Devices deemed to pose less risk are placed in class I (general controls) or
class II (general and special controls) and qualify for 510(k) notification, a
procedure under sec. 510(k) of the Federal Food, Drug, and Cosmetic Act (the
"FDC Act"). In order for a device to qualify under the sec. 510(k) notification
procedure, the manufacturer must, among other things, establish that the product
to be marketed is substantially equivalent in intended use and safety and
effectiveness to another legally marketed class I or class II device or to a
"preamendment" class III device (as defined below) for which FDA has not called
for PMAs. In such cases, marketing of the product may commence when the FDA
issues a letter finding that there is a substantial equivalence to the legally
marketed device. The FDA may require, in connection with a 510(k) notification,
the manufacturer to provide the FDA with test results from animal studies and/or
human clinical trials. The Company believes that it typically takes between four
and 12 months to obtain a 510(k) clearance, but it can take longer.
A 510(k) clearance is also required when the manufacturer makes changes or
modifications to a cleared device that could significantly affect safety or
effectiveness, or where there is a major change or modification in the intended
use of a cleared device. In such cases, the manufacturer is the party which
initially determines if the change or modification is of a kind or nature that
would necessitate a new 510(k) notification. The FDA's regulations provide only
limited guidance in making such determinations. The FDA has cleared the
Company's electrical dose controller and electrode kits for marketing under a
510(k) clearance. Since obtaining its 510(k) clearances, the Company has made
modifications to its products. Based on the checklist developed by the FDA to
assist manufacturers in determining whether they are required to obtain a 510(k)
clearance for a modified device, the Company has determined that a new 510(k)
submission was not required in connection with the commercial introduction of
such products. However, there can be no assurance that the FDA will not require
the Company to obtain additional 510(k) clearances with respect to those
products. If the FDA requires the Company to submit a new 510(k) notice for any
device modification, the Company may be prohibited from marketing the modified
device until the 510(k) notice is cleared by the FDA.
A medical device that does not qualify for the 510(k) clearance is placed
in class III, which is reserved for devices deemed by the FDA to pose the
greatest risk (e.g., life-sustaining, life supporting or implantable devices, or
devices that are not substantially equivalent to a legally marketed class I or
II device). The manufacturer of such a device must file a PMA application under
sec. 515 of the Drug Act. A PMA application generally requires a much more
complex submission than a 510(k) notification and typically requires a showing
that the device is safe and effective based on extensive and costly preclinical
and clinical testing, as well as information about the device and its components
regarding, among other things, manufacturing, labeling and promotion. Upon
submission, the FDA determines if the PMA application is sufficiently complete
to permit substantive review and, if so, the application is accepted for filing.
The FDA then commences an in-depth review of the PMA application, which the
Company believes can last from one to three years, or even longer. Even after
approval of a PMA, a new PMA or PMA supplement is required in the event of a
modification to the device, its labeling or its manufacturing process.
A preamendment class III device is one that was on the market before May
28, 1976. A device that is substantially equivalent to a preamendment class III
device can be brought to market through the 510(k) process until the FDA either
calls for the submission of PMA applications or downclassifies the device to
class I or II. Manufacturers of preamendment class III devices that the FDA
retains in class III must submit PMA applications 90 days after the publication
of a final regulation calling for PMAs. In such event, a PMA must be submitted
even if the device has already received 510(k) premarket clearance. On the other
hand, if
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the FDA downclassifies a preamendment class III device to class I or II, a PMA
application is not required and such devices may continue to be marketed through
the 510(k) process.
An even more lengthy and complex regulatory framework applies to the
labeling and marketing of specific drugs for use with an iontophoresis device.
The activities required before a pharmaceutical product may be marketed in the
United States primarily begin with preclinical testing. Preclinical tests
include extensive laboratory evaluation of product chemistry and other end
points and animal studies to assess the potential safety and efficacy of the
product as formulated. Almost all preclinical studies pertinent to drug approval
are regulated by the FDA under a series of regulations called the Good
Laboratory Practice (GLP) regulations. Violations of these regulations can, in
some cases, lead to invalidation of the studies, requiring such studies to be
replicated.
If the drug is subject to full NDA requirements, FDA approval process
entails (i) conducting preclinical laboratory and animal testing to enable FDA
authorization of an IND application, (ii) initial IND clinical studies to define
safety and dose parameters, (iii) well controlled IND clinical trials to
demonstrate product safety and efficacy, and (iv) submission to the FDA of an
NDA. Preclinical studies involve laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety of the
drug. Human clinical trials are typically conducted in three sequential phases.
Phase I trials normally consist of testing the product in a small number of
healthy volunteers for safety and pharmacokinetic parameters using single and
multiple dosing regimens. In Phase II trials, the manufacturer evaluates safety,
initial efficacy, and dose ranging of the product for specific indications in a
somewhat larger patient population. Phase III trials typically involve expanded
testing for safety and clinical efficacy in a broad patient population at
multiple clinical testing centers. The manufacturer must also submit a clinical
plan, or "protocol," accompanied by the approval of the institution
participating in the trials, to the FDA prior to commencing each clinical trial
and must obtain the informed consent of subjects in the clinical trial. The FDA
may order the temporary or permanent discontinuation of clinical trials at any
time. All the results of the preclinical and clinical studies on a product are
then submitted to the FDA in the form of an NDA for review. In responding to an
NDA, the FDA may grant marketing approval, require additional testing and/or
information, or deny the application altogether. The process of obtaining FDA
approval for a new product through the IND/NDA process may take several years
and typically involves the expenditure of substantial resources.
The Company may be subject to certain user fees that the FDA is authorized
to collect under the Food and Drug Modernization Act of 1997, which reauthorized
the user fees established in the Prescription Drug User Fees Act of 1992 for
certain drugs.
Because of the known safety and efficacy profile of Dexamethasone and other
approved drugs for which the Company may seek NDA approval for iontophoretic
delivery, the clinical trials and other studies may not be as lengthy or
extensive as would be required for unapproved new drugs that are subject to full
NDA requirements. This strategy, however, depends upon the Company's ability to
obtain a contractual right to reference in the Company's NDA application of the
safety and efficacy data for such drugs in approved NDAs held by other
companies. The Company has obtained a right to reference safety and efficacy
data for Dexamethasone. There can be no assurance that the Company will be able
to obtain a right of reference for all unapproved drugs that may be used for
iontophoretic delivery. The Company's failure to obtain a right of reference to
safety and efficacy data for any drug for which the Company would like to obtain
approval for iontophoretic delivery could have a material adverse effect on the
Company's business, financial condition and results of operations.
The regulatory status of iontophoresis devices is also complex. The FDA has
classified them as class II devices eligible for marketing through 510(k)
premarket clearance when intended for use with a drug whose labeling bears
adequate directions for the device's use with that drug. However, if an
iontophoresis device is intended for use with a drug that is not labeled for use
with the device, the FDA considers the iontophoresis device to be a preamendment
class III device. This status means that the device at present can be marketed
through a 510(k) clearance, but it remains subject to a call for PMAs.
In an April 1994 document setting forth the FDA's strategy for addressing
preamendment class III devices, the FDA indicated that preamendment class III
iontophoresis devices were among fifteen "high
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priority" devices that presented an unreasonably high risk to public health
because significant issues of safety and/or effectiveness were not being
resolved or, to the agency's knowledge, had little probability of being
resolved. The FDA indicated that these devices were not considered candidates
for downclassification and were very likely to be required to be subject to
PMAs. This process would involve two steps. First, the FDA would publish a
proposed regulation to require PMAs for iontophoresis devices having
preamendment class III status. After a comment period, FDA would then publish a
final regulation imposing the requirement. The FDA's strategy document stated
the agency's intent to publish a proposed regulation requiring PMAs for
preamendment class III iontophoresis devices in 1996. The agency, to date, has
not published such a regulation.
The Company's Phoresor received 510(k) clearance in 1990 as a preamendment
class III device labeled for use with ions of soluble salts or other drugs. In
1995, the FDA approved an NDA for Iontocaine to be used as a local anesthetic
and delivered iontophoretically by the Phoresor, which effectively moved the
Phoresor into class II for this intended use. Unlike Iontocaine, Dexamethasone
does not have an NDA approval allowing it to be labeled for iontophoretic
delivery. Thus, the Company's Phoresor is a preamendment class III device when
used with Dexamethasone (or any drug other than Iontocaine). No assurance can be
given that the Company will ever obtain an approved NDA for the iontophoretic
delivery of Dexamethasone. The Company's failure to obtain FDA approval of an
NDA for Dexamethasone could have a material adverse effect on the Company's
business financial condition and results of operations.
If the FDA calls for PMAs for preamendment class III iontophoresis devices,
the Company would be required to have a PMA accepted for filing by the FDA
within 90 days after the date of the final regulation calling for PMAs. There
can be no assurance that the Company would be able to complete necessary
clinical studies and otherwise prepare and file a PMA within the prescribed time
period, or that any data and information submitted in a PMA would be adequate to
support approval. The Company's failure to submit a PMA and have it accepted for
filing by the FDA within the required timeframe could result in the Company
being required to cease commercial distribution of the Phoresor for use with
Dexamethasone. Upon timely filing of a PMA, the Company believes (based on FDA's
announced position as to certain other preamendment class III medical devices)
that the FDA would permit continued commercial distribution of the Phoresor for
use with Dexamethasone during the time necessary to review the PMA. There can be
no assurance, however, that the FDA would permit such continued commercial
distribution pending review of a PMA for the device, nor can any assurance be
given that the FDA would approve a PMA filed by the Company. The FDA also could
condition PMA approval upon approval of an NDA permitting Dexamethasone to be
labeled for use with the Phoresor. If the Company were required for any length
of time to cease commercial distribution of the Phoresis System for use with
Dexamethasone, the Company's business, financial condition and results of
operations would be materially and adversely affected pending approval of a PMA
or NDA.
The FDA also regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate current GMP compliance, including compliance with the Quality System
Regulation (for devices) and the current GMP regulations (for drugs). The FDA's
GMPs require, among other things, that (i) the manufacturing process be
regulated and controlled by the use of written procedures, and (ii) the ability
to produce products which meet the manufacturer's specifications be validated by
extensive and detailed testing at various steps of the manufacturing process.
These regulations also require investigation of any deficiencies in the
manufacturing process, the products produced, or record keeping. The FDA
monitors compliance with these requirements by requiring manufacturers to
register their manufacturing facilities with the FDA and by conducting periodic
FDA inspections of those facilities. If an FDA inspector observes conditions
that might be in violation of GMP requirements, the manufacturer is generally
required to correct those conditions or explain them satisfactorily. If a
manufacturer fails to adhere to GMP requirements, the devices manufactured by
the manufacturer could be considered to be manufactured in violation of the FDC
Act and the manufacturer could be subject to FDA enforcement action that could
include fines, plant closure, or a recall of the Company's product.
Agencies similar to the FDA regulate medical devices and pharmaceutical
products in most developed foreign countries, whereas some other countries allow
unregulated marketing of such devices and products.
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The Company will be required to meet the regulations of any foreign country
where it markets its products. There can be no assurance any of the Company's
future products will receive FDA clearance or similar clearance in foreign
countries. It is also possible that regulations governing the manufacture and
sale of the Company's products could change in the future. The Company cannot
predict the impact of any such changes on its business. See "Risk
Factors -- Government Regulation."
Various aspects of the Company's business and operations are also regulated
by a number of other governmental agencies including the Drug Enforcement
Agency, U.S. Department of Agriculture, the Environmental Protection Agency, the
Occupational Safety and Health Administration as well as by other federal, state
and local authorities. In addition, international sales are regulated by
numerous foreign authorities. Unanticipated changes in existing regulatory
requirements, failure of the Company to comply with such requirements or
adoption of new requirements could have a material adverse effect on the
Company. There can be no assurance the Company will not be required to incur
significant costs to comply with such laws and regulations in the future or that
such laws or regulations will not have a material adverse effect upon the
Company's business, financial condition and results of operations.
COMPETITION
The drug delivery, pharmaceutical and biotechnology industries are highly
competitive and rapidly evolving, with significant developments expected to
continue at a rapid pace. The Company's success will depend upon maintaining a
competitive position and developing products and technologies for efficient and
cost effective drug delivery. The Company's products will compete with other
formulations of drugs and with other drug delivery systems, including other
iontophoretic delivery systems. The Company believes its products will compete
on the basis of quality, efficacy, cost, convenience, safety and patient
compliance, but there can be no assurance any of the Company's products will
have advantages significant enough to cause medical professionals to adopt their
use. New drugs or further developments in alternative drug delivery methods may
provide greater therapeutic benefits for a specific drug or indication, or may
offer comparable performance at lower cost than those offered by the Company's
iontophoretic systems.
The Company is aware of many other competitors in the general field of drug
delivery, including competitors developing injectable or implantable drug
delivery systems, oral drug delivery technologies, passive transdermal systems,
oral transmucosal systems and intranasal and inhalation systems. The Company is
also aware of other companies that have developed or are currently developing
iontophoretic and other electrotransport drug delivery systems. There can be no
assurance that developments by these parties or others will not render the
Company's products or technologies uncompetitive or obsolete. Many of the
Company's existing or potential competitors have substantially greater research
and development capabilities, experience, manufacturing, marketing, financial,
and managerial resources than the Company. Accordingly, the Company's
competitors may succeed in developing competing technologies, obtaining FDA
approval or gaining market share for products more rapidly than the Company, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Both Alza and Empi, Inc. ("Empi") are engaged in the development and/or
marketing of iontophoretic devices. Alza is undertaking the development of
iontophoretic drug delivery systems, but does not currently market any
iontophoretic products. Empi is the Company's primary competitor in the
treatment of acute local inflammation in the physical therapy market and, the
Company estimates, controls a majority of the retail iontophoresis market for
that indication.
Currently, no other company markets an iontophoretic system for the
inducement of local anesthesia. The Company's iontophoretic system for
delivering Iontocaine for the inducement of local dermal anesthesia will
therefore primarily compete with traditional methods of delivering local dermal
anesthetics by needle injection or will be used in circumstances where either no
anesthesia is used, due to the pain associated with the needle injection
(including needle injections themselves), or where topical anesthetic creams are
used. The most effective and widely used topical anesthetic cream, EMLA, is
manufactured and sold by Astra Corporation, a large Swedish pharmaceutical
company. There can be no assurance that the Company can effectively compete with
these products or any other drug delivery systems. See "Risk
Factors -- Uncertainty
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of Market Acceptance and Limited Market Penetration" and "Risk
Factors -- Intense Competition and Rapid Technological Change."
FACILITIES
The Company maintains leased administrative, manufacturing and research
office space at two facilities. The Company's principal executive offices and
manufacturing facility, which consists of approximately 18,000 square feet of
useable space, are located at 3385 West 1820 South in Salt Lake City, Utah. Its
research facility, which consists of approximately 8,000 square feet of useable
space, is located at 1290 West 2320 South in Salt Lake City, Utah. These
facilities are leased to the Company until December 31, 1999 and December 31,
1997, respectively. The Company is currently negotiating an extension of the
lease on its research and development facilities. The Company believes its
existing facilities are adequate and suitable for its present needs and that
additional space will be available as needed.
EMPLOYEES
The Company has assembled a team of medical-products managers and
scientists with considerable experience in iontophoresis, encompassing all of
the key disciplines which the Company believes are necessary to further the
development and implementation of the Company's business.
As of September 1, 1997, the Company had 73 full-time employees, 6 of whom
hold doctorate degrees. Six others hold advanced business or technical degrees.
Of the Company's 73 full-time employees on September 1, 1997, 14 were engaged in
research and development, 35 in manufacturing and quality control, and 24 in
marketing and general administration. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. None of the Company's employees is
represented by a labor union. The Company has not experienced any work stoppages
and considers its relations with its employees to be good. See "Risk
Factors -- Retention and Attraction of Key Employees."
LEGAL PROCEEDINGS
The Company is not involved in, nor is it aware of, any litigation or
impending litigation.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The current executive officers, directors, and key employees of the Company
are:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- ----------------------------------------------------
<S> <C> <C>
Ned M. Weinshenker, Ph.D. 55 President, Chief Executive Officer and Director;
President and Chief Executive Officer, Dermion
W. Tim Miller 46 Executive Vice President, Sales and Marketing and
General Manager, Clinical Systems
Thomas M. Parkinson, Ph.D. 60 Vice President, Research and Development; General
Manager, Dermion
Robert J. Lollini 43 Vice President, Finance, Chief Financial Officer and
Secretary; Vice President, Secretary and Treasurer,
Dermion
James R. Weersing 58 Chairman of the Board of Directors
John W. Fara, Ph.D. 54 Director
Michael T. Sember 47 Director
Steven P. Sidwell 57 Director
Peter J. Wardle 62 Director
Warren Wood 66 Director
Timothy B. Lucas 34 Director of National Sales
Craig S. Lewis 37 Director of Anesthesia Project
Jamal S. Yanaki 37 Director of Operations
Mary A. Crowther 46 Director of Administration and Finance
</TABLE>
NED M. WEINSHENKER, PH.D. has served as a director of the Company since
1990 and served as Chairman of the Board of Directors between November 1990 and
January 1992. Dr. Weinshenker was appointed to serve as the Company's Chief
Executive Officer in 1992. In 1993, he was also appointed to serve as the
Company's President. Dr. Weinshenker also serves as President and Chief
Executive Officer of Dermion. Dr. Weinshenker's previous work experience
encompasses twenty years in the pharmaceutical and biotechnology fields,
including senior positions at three drug delivery companies. Between 1986 and
1990, Dr. Weinshenker was a principal in MBW Management, a venture capital firm.
Dr. Weinshenker was President of Churchill Oaks Consulting, a consultant to
pharmaceutical and biotechnology companies, from 1983 to 1986. He served as Vice
President of Research & Development at Sequus, Inc., a drug delivery company,
between 1982 and 1983. He served as Vice President of Research at Dynapol, Inc.,
a chemical technology company, from 1972 to 1982. He was Director of Physical
Sciences at Alza, a large drug delivery company, between 1970 and 1972. Dr.
Weinshenker currently serves as a director of CyDex, Inc., a drug delivery
company. Dr. Weinshenker received a Bachelor of Science in Chemistry from the
Polytechnic Institute of Brooklyn and a Ph.D. in Organic Chemistry from the
Massachusetts Institute of Technology. Dr. Weinshenker also spent a year at
Harvard University as a National Institutes of Health Postdoctoral Fellow.
W. TIM MILLER has served as Executive Vice President, Sales and Marketing
and General Manager, Clinical Systems since joining the Company in 1994. Between
1991 and 1994, Mr. Miller was the President and Chief Executive Officer of
Sharpe Endosurgical Corporation, a company that designs, manufactures, and
markets specialty endosurgical instruments. From 1990 to 1991, Mr. Miller was a
partner in Kansas Creative Devices, a medical device design firm. Between 1986
and 1990, Mr. Miller was a Vice President and General Manager of the Diagnostics
Division of Marion Laboratories, where he led the sales efforts for a variety of
diagnostic products including the 10 Minute Strep Throat ID System. Prior to
1986, Mr. Miller held senior sales positions with American Home Products
Corporation and American Hospital Supply Corporation. Mr. Miller previously
served as a director of the American Social Health Association and the
Biomedical Marketing Association. Mr. Miller received a Bachelor of Science
degree in Life Science from Southern Indiana University.
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THOMAS M. PARKINSON, PH.D. joined the Company in 1991 and presently serves
as Vice President, Research and Development and General Manager, Dermion. Prior
to joining the Company he was Vice President of Research and Development for
Sequus, Inc., where he was responsible for biopharmaceutics, clinical testing,
and developing regulatory strategy for new liposome drug delivery systems. Prior
to that, Dr. Parkinson was Director of Medical Affairs for Collagen Corporation,
a chemical technology company, and Vice President of Dynapol, Inc., a chemical
technology company. From 1968 to 1974 he also was head of the Atherosclerosis
Research Section of Upjohn Company, a pharmaceutical manufacturer, where he
developed Colestid, Upjohn's first cholesterol-lowering drug. Dr. Parkinson
received a Bachelor of Science degree in Chemistry from Providence College and a
Ph.D. in Biochemistry and Medical Sciences from the University of Florida
College of Medicine.
ROBERT J. LOLLINI has served as Vice President, Finance, Chief Financial
Officer and Secretary since joining the Company in 1993. Mr. Lollini also serves
as Vice President, Secretary and Treasurer, Dermion. Between 1989 and 1992, Mr.
Lollini worked for R.P. Scherer Corporation, an international drug delivery
company, as Vice President, Finance, Chief Financial Officer and Secretary, and
between 1981 and 1989, as its Corporate Controller and Chief Accounting Officer
and various other management capacities. Between 1978 and 1981, Mr. Lollini was
with the accounting firm of Arthur Andersen & Co. Mr. Lollini is a Certified
Public Accountant and received a Bachelor of Arts degree in Accounting from
Michigan State University and an MBA in Finance/Economics from the University of
Detroit.
JAMES R. WEERSING has served as Chairman of the Company's Board of
Directors since 1992, and has been a director of the Company since 1987. Mr.
Weersing has been Managing General Partner of MBW Management, Inc., a venture
capital firm, since 1983. Mr. Weersing also serves as a director of Ventana
Medical Systems, Inc., a medical diagnostics company. Mr. Weersing received a
Bachelor of Science degree in Mechanical Engineering and an MBA degree from
Stanford University.
JOHN W. FARA, PH.D. has served as a director of the Company since 1992. Dr.
Fara has served as the President and Chief Executive Officer of DepoMed, Inc., a
pharmaceutical company, since 1996. Dr. Fara also serves as a director of two
other companies, PediaPharm, Inc. and Cooks Pharma, Inc. From 1990 to 1996, Dr.
Fara was President and Chief Executive Officer of Anergen, Inc., a biotechnology
company. Dr. Fara received a Bachelor of Science degree in Pharmacy from the
University of Wisconsin and a Ph.D. in Physiology from the University of
California, Los Angeles.
MICHAEL T. SEMBER has served as a director of the Company since May of
1997. Mr. Sember is Vice President of Planning, Investments and Development for
Elan. Prior to joining Elan, Mr. Sember was with Marion Merrell Dow, Inc. from
1973 to 1991 and, prior to that, Marion Laboratories. Mr. Sember also serves as
a director of both Acorda Therapeutics, Inc., a pharmaceutical company, and the
Georgia Biomedical Partnership, an industry trade organization, and as Chairman
and Chief Executive Officer of Targon Corporation, a joint venture company of
Elan and CYTOGEN Corp. Mr. Sember received a Bachelor of Science from the
University of Pittsburgh and an MBA from Rockhurst College.
STEVEN P. SIDWELL has served as a director of the Company since 1993. Mr.
Sidwell has served as the Executive Vice President of SensorMedics, Inc., a
cardiopulmonary diagnostic device manufacturer and a subsidiary of
ThermoElectron, Inc, since 1996. Mr. Sidwell served as the Vice President of
Operations and as Executive Vice President for SensorMedics between 1991 and
1996. Mr. Sidwell received a Bachelor of Science degree in Chemical Engineering
from Purdue University and an MBA from the Wharton School at the University of
Pennsylvania.
PETER J. WARDLE has served as a director of the Company since 1987. Mr.
Wardle has been a General Partner of Newtek Ventures, a venture capital company,
since 1983. Mr. Wardle also serves as a director of Laser Diagnostic
Technologies, a biotechnology company, Microbar, Inc., a software company, IES
Technologies Corporation, a software company and Sensys Instruments Corporation,
a semiconductor company. Mr. Wardle received a Bachelor of Arts degree in
History and Economics from Dartmouth College.
WARREN WOOD has served as a director of the Company since 1996. In 1996 Mr.
Wood retired as Chairman of the Board of Directors, President and Chief
Executive Officer of Cabot Medical Corporation, a
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medical device company, a position he held since 1983. Mr. Wood received a
Bachelor of Science in Electrical Engineering from the University of Washington.
TIMOTHY B. LUCAS joined the Company in 1992 and presently serves as the
Director of National Sales for the Company's local inflammation products. From
1989 to 1991, Mr. Lucas served in various national and regional sales capacities
with the Nortech Division of Medtronic, Inc., a manufacturer of external
neuromuscular stimulators. Prior to joining Medtronic, Mr. Lucas was a Field
Sales Manager with SePro Healthcare, Inc., a manufacturer of orthopedic
products. Mr. Lucas received a Bachelor of Science degree in Marketing from York
College of Pennsylvania.
CRAIG S. LEWIS joined the Company in 1997 as Director of Anesthesia Project
to direct the market introduction of the Company's local dermal anesthesia
product line. Between 1996 and 1997, Mr. Lewis was Global Marketing Director,
Patient Care Division for Zimmer, Inc., a manufacturer of orthopedic products.
Between 1995 and 1996, Mr. Lewis was Director of Marketing for Seabrook Medical
Systems, Inc., a manufacturer of temperature management therapy products. From
1994 to 1995, Mr. Lewis was the Director of Client Business Development for
On-Target Media, Inc., a company which develops media displays for medical
practitioners. From 1991 to 1994, Mr. Lewis held various pharmaceutical sales,
product management and marketing positions with Marion Merrell Dow, Inc. Mr.
Lewis received a Bachelor of Science degree in Business and Finance from the
University of Cincinnati and an MBA degree from Xavier University.
JAMAL S. YANAKI joined the Company in 1992 and presently serves as the
Director of Operations. From 1992 to 1997, Mr. Yanaki was Director of
Engineering and Quality. Between 1990 and 1992, Mr. Yanaki was a Senior Process
Development Engineer for Coherent, Inc., a manufacturer of medical lasers. Prior
to 1990, Mr. Yanaki worked as a process development engineer for the Lifescan
Division of Johnson and Johnson Corp., a manufacturer of blood glucose
monitoring systems. Mr. Yanaki received a Bachelor of Science degree in
Chemistry from Loyola University of Chicago and a Masters degree in Chemical
Engineering from the Colorado School of Mines.
MARY A. CROWTHER joined the Company in 1979 and presently serves as
Director of Finance and Administration. During her 18 years with the Company,
Ms. Crowther has served in various management capacities in the areas of
administration, accounting, information systems, risk management, treasury and
human resources. Ms. Crowther received a Bachelor of Science degree in Business
Administration from Westminster College.
BOARD OF DIRECTORS AND OTHER INFORMATION
The Company's Articles of Incorporation provide for a classified Board of
Directors consisting of three classes, as nearly equal in number as possible.
The directors in each class serve staggered three year terms. The class three
directors (consisting of Messrs. Wardel and Wood) serve until 1998, the class
two directors (consisting of Mr. Sidwell and Dr. Fara) serve until 1999, and the
class one directors (consisting of Messrs. Weersing and Sember and Dr.
Weinshenker) serve until 2000. At each annual meeting of the shareholders of the
Company, the successors to the class of directors whose term expires at such
meeting will be elected to hold office for a term expiring at the annual meeting
of shareholders held in the third year following the year of their election. The
Company's Articles of Incorporation provide that directors may be removed only
for cause and only by the affirmative vote of the holders of two-thirds of the
Common Shares entitled to vote.
BOARD OF DIRECTORS' COMMITTEES
The Board of Directors has established four committees, the Executive
Committee, Audit Committee, Compensation Committee and Special Committee. Each
of these committees is responsible to the full Board of Directors, and its
activities are subject to approval of the Board of Directors. The Executive
Committee is charged with overseeing the operations of the Company, and
generally has all of the authority of the full Board of Directors, between
regularly scheduled meetings of the full Board of Directors. The Executive
Committee is comprised of Mr. Weersing, Dr. Weinshenker and Mr. Wardle. The
Audit Committee reviews the scope and results of the annual audit of the
Company's consolidated financial statements conducted by the
56
<PAGE> 58
Company's independent accountants, the scope of other services provided by the
Company's independent accountants, proposed changes in the Company's financial
and accounting standards and principles, and the Company's policies and
procedures with respect to its internal accounting, auditing and financial
controls. The Audit Committee also examines and considers other matters relating
to the financial affairs and accounting methods of the Company, including the
selection and retention of the Company's independent accountants. The Audit
Committee is comprised of Mr. Weersing, Dr. Fara and Mr. Sidwell. The
Compensation Committee administers the Company's compensation programs, reviews
and recommends to the Board of Directors compensation arrangements for senior
Company management and directors, and performs such other duties as may from
time to time be determined by the Board of Directors. In addition, the
Compensation Committee is responsible for administering the Company's stock
option plans. The Compensation Committee is comprised of Mr. Weersing, Dr. Fara
and Mr. Wardle. There are no interlocking relationships, as described by the
Securities and Exchange Commission, between the Compensation Committee members.
The Special Committee is charged with overseeing the actions to be taken by the
Company with respect to the Offering, and generally has all of the authority of
the full Board of Directors on issues relating to the Offering. The Special
Committee is comprised of Dr. Weinshenker, Mr. Weersing and Mr. Wood. See
"Employee Benefit Plans."
DIRECTOR COMPENSATION
Directors are not paid any cash compensation for attendance at directors'
meetings or for attending or participating on any committee. Directors are
reimbursed, however, for any reasonable out-of-pocket expenses they incur in
connection with attendance at meetings. In addition, all non-employee directors
are eligible to participate in the Company's stock option plans. Upon the
approval of the Board of Directors, certain non-employee directors have been
granted non-qualified options to purchase Common Shares. Dr. Fara and Messrs.
Sidwell and Wood have received options to purchase 6,250, 5,208 and 4,166 Common
Shares, respectively. The option grants vest over a four-year period. All such
options are exercisable at an exercise price equal to the fair market value of
the Common Shares on the date of grant (as adjusted for stock splits and similar
transactions), and are subject to certain vesting schedules. The number of
shares subject to any such grants, and the exercise price(s) of the stock
underlying those grants, are determined by the Compensation Committee and
approved by the Board of Directors.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
Company's Chief Executive Officer and the four other most highly compensated
executive officers whose total salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers") during the fiscal year ended June 30, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
Ned M. Weinshenker, Ph.D. ................................ $189,000 $25,000 $ 5,000
President, Chief Executive Officer and Director;
President, Chief Executive Officer, Dermion
W. Tim Miller............................................. $152,000 $25,000 $ 11,000(2)
Executive Vice President, Sales and Marketing and
General Manager, Clinical Systems
Thomas M. Parkinson, Ph.D. ............................... $115,000 $25,000 $ 5,000
Vice President, Research and Development;
General Manager, Dermion
Robert J. Lollini......................................... $145,000 $25,000 $ 5,000
Vice President, Finance, Chief Financial Officer and
Secretary;
Vice President, Secretary and Treasurer, Dermion
Timothy B. Lucas.......................................... $119,000 $16,000 $ 12,000(3)
Director of National Sales
</TABLE>
57
<PAGE> 59
- ---------------
(1) Represents premiums on group term life insurance and medical and dental
insurance.
(2) Also includes principal and interest payment of $6,000 due on a $25,000
bridge loan made by the Company to Mr. Miller in connection with his
relocation, and which was forgiven by the Company.
(3) Also includes automobile reimbursement of $7,000.
STOCK OPTION GRANTS
There were no options granted to the Named Executive Officers during the
fiscal year ended June 30, 1997.
FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the number and value of
options held by the Named Executive Officers on June 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ned M. Weinshenker, Ph.D. ................. 41,615 15,469 $ 106,019 $ 9,333
W. Tim Miller.............................. 29,774 17,101 $ 55,000 $25,000
Thomas M. Parkinson, Ph.D. ................ 28,906 6,510 $ 105,583 $ 4,667
Robert J. Lollini.......................... 29,340 12,326 $ 52,000 $ 8,000
Timothy B. Lucas........................... 2,693 3,557 $ 3,870 $ 2,130
</TABLE>
- ---------------
(1) For purposes of determining the values of the options held by the Named
Executive Officers, the Company has assumed that the Common Shares
underlying the options had a value of $6.72 per share on June 30, 1997,
which is the estimated fair market value the Board of Directors attributed
to the Common Shares in March, 1997, in connection with certain grants of
options under the Company's stock option plans. The option value is based on
the difference between the fair market value of the shares on June 30, 1997,
and the option exercise price per share, multiplied by the number of Common
Shares subject to the option.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation limit the personal liability of
directors and officers for monetary damages to the maximum extent permitted by
Utah law. Under Utah law, such limitations include monetary damages for any
action taken or failed to be taken as an officer or director except for (i)
amounts representing a financial benefit to which the person is not entitled,
(ii) liability for intentional infliction of harm on the corporation, or its
shareholders, (iii) unlawful distributions, or (iv) an intentional violation of
criminal law. The Articles of Incorporation also provide that the Company will
indemnify its directors and officers against any damages arising from their
actions as agents of the Company, and that the Company may similarly indemnify
its other employees and agents. The Company is also empowered under its Articles
of Incorporation to enter into indemnification agreements with its directors and
officers.
The Company's Bylaws provide that, to the full extent permitted by the
Company's Articles of Incorporation and the Utah Revised Business Corporation
Act, the Company will indemnify (and advance expenses to) the Company's
officers, directors and employees in connection with any action, suit or
proceeding (civil or criminal) to which those persons are made party by reason
of their being a director, officer or employee.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification by the
Company would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which would result in a claim for such
indemnification.
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<PAGE> 60
EMPLOYEE BENEFIT PLANS
Stock Option Plans. The Company has adopted and approved two incentive
compensation plans. The Company's 1988 Stock Option Plan (the "Stock Option
Plan") was approved and adopted by the Company's Board of Directors in April
1988 and was approved by its shareholders in November 1988. The Company's 1997
Share Incentive Plan (the "Share Incentive Plan") was approved and adopted by
the Company's Board of Directors in October 1997 and was approved by its
shareholders in November 1997. The Stock Option Plan and Share Incentive Plan
provide for grants to employees, officers, directors and consultants of both
non-qualified stock options and "incentive stock options" (within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")). The
Share Incentive Plan also provides for the grant of certain other incentive
compensation, including stock awards, stock appreciation rights, dividend
equivalent rights, performance-based awards and cash bonus rights. The purpose
of the Stock Option Plan and Share Incentive Plan is to attract and retain the
best available personnel to the Company and to encourage stock ownership by the
Company's employees, officers, directors and consultants in order to give them a
greater personal stake in the success of the Company.
A total of 520,833 Common Shares were reserved for issuance under the Stock
Option Plan. As of November 1, 1997, options to purchase a total of 135,679
Common Shares had been exercised, options to purchase a total of 339,512 Common
Shares at a weighted average exercise price of $4.80 per share were outstanding,
and 45,642 Common Shares remained available for future option grants or awards.
A total of 312,500 Common Shares were reserved for issuance under the Share
Incentive Plan. The Board of Directors has not granted any options for, or
issued any Common Shares under, the Share Incentive Plan.
The Stock Option Plan is administered by the Compensation Committee, which
determines and designates the recipients of the options, the dates the options
are granted, the number of Common Shares subject to the options, option prices,
vesting terms, fair market value of the Common Shares, duration of the options
and whether any options granted to employees are to be incentive stock options
or non-qualified options.
The exercise price of all options granted under the Stock Option Plan must
be at least 100% of the fair market value of the Common Shares on the grant
date. The term of an option may not exceed ten years from the date of grant.
With respect to any participant who owns shares possessing more than 10% of the
voting power of all classes of shares of the Company, the exercise price of any
option granted must be at least 110% of the fair market value of the Common
Shares on the grant date and the term of such option may not exceed five years.
No incentive options may be granted to a participant which, when aggregated with
all other incentive options granted to that participant, would have an aggregate
fair market value in excess of $100,000 becoming exercisable in any calendar
year.
No option may be transferred by the optionee other than by will or the laws
of descent and distribution. During the lifetime of an optionee, only the
optionee may exercise an option. An option is exercisable on or after each
vesting date in accordance with the terms set forth in the option agreement.
Incentive options are exercisable only during the optionee's employment by the
Company, and for a period of up to 90 days after the termination of the
optionee's employment.
The Share Incentive Plan is also administered by the Compensation
Committee, which in general is responsible for determining the type, amount and
terms of any consideration awarded to a recipient. Under the Share Incentive
Plan, any options granted to a recipient are exercisable in accordance with the
terms of the agreement governing the grant. If the option is an incentive stock
option, those terms must be consistent with the requirements of the Code, as
amended, and applicable regulations, including the requirement that the option
price not be less than the fair market value of the Common Shares on the date of
the grant. If the option is not an incentive stock option, the option price may
be any price determined by the Compensation Committee.
In addition to incentive stock options and non-incentive stock options, the
Compensation Committee may award other types of incentive compensation under the
Share Incentive Plan. Such additional incentive compensation can include stock
awards, stock appreciation rights (which entitle the holder of the right upon
59
<PAGE> 61
exercise thereof to receive payment from the Company of an amount equal in value
to the excess of the fair market value of the Company's Common Shares on the
date of exercise over the fair market value of the Company's Common Shares on
the date of grant or, if granted in connection with an option, the option price
per share under the option to which the stock appreciation right relates), cash
bonuses, performance-based awards (which are intended to qualify as
performance-based compensation under sec. 162(m) of the Code) and Common Shares
which are subject to a purchase agreement between the Company and the
prospective recipient.
401(k) Plan. In 1990, the Company adopted a deferred compensation plan
under sec. 401(k) of the Code (the "401(k) Plan"). Each full-time employee who
has completed at least one year of service with the Company and has reached age
21 is eligible to make pre-tax elective deferral contributions of up to 20% of
their total compensation per plan year, subject to a specified maximum
contribution as determined by the Internal Revenue Service. The Company matches
the employee's contribution on a formula of $0.25 to the dollar, not to exceed
three percent of the employee's gross annual compensation. The vesting schedule
of the employer match is 33 1/3% per year, over three years. Any potential
forfeitures of the Company's portion of the contribution that do not become
vested are reallocated to the remaining employees in the 401(k) Plan based on
their account balance as a percentage of the whole.
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<PAGE> 62
CERTAIN TRANSACTIONS
In July 1995, the Company entered into a research and development agreement
with the predecessor to Novartis. The collaboration was formed to evaluate the
potential for development of iontophoretic drug delivery systems for a number of
Novartis compounds for several therapeutic applications. In connection with the
collaboration, Novartis purchased a 20% equity interest in Dermion. Pursuant to
the R&D Agreements, as amended, Novartis is required to pay research costs under
the program and to make milestone payments if Dermion successfully completes
certain objectives. The R&D Agreements may be terminated by either party for any
reason upon six months notice. In addition, the Company granted Novartis a
perpetual, non-exclusive, royalty-bearing license to certain of the Company's
iontophoretic technology, as well as certain rights with respect to future
technology developed or acquired by the Company. In addition, the Company agreed
to certain limitations on its ability to develop products in certain Novartis
fields. Novartis also shares rights to all technology jointly developed pursuant
to the collaboration.
Effective November 1, 1997, the Company, Dermion and Novartis amended the
terms of their relationship by entering into the 1997 Amendments. Under the 1997
Amendments, Novartis exchanged its 20% equity interest in Dermion for 238,541
Common Shares and warrants to acquire 18,750 Common Shares at an exercise price
of $21.60 per share. One-third of Novartis' warrants are currently exercisable.
Another one-third will be exercisable if Novartis commits to provide research
and development funding under the R&D Agreements for 1999. The balance will be
exercisable if Novartis commits to such funding for the year 2000. See
"Business -- Collaborative Relationships and Licenses."
In March 1997, the Company entered into the Elan Agreements, an exclusive,
worldwide license to certain of Elan's iontophoretic drug delivery technology,
including over 250 issued and 47 pending United States and foreign patents, as
well as a significant body of know-how and preclinical and clinical study
results. The Company acquired the Elan technology by issuing Elan two promissory
notes, a $10.0 million note and a $5.0 million note. The Company also issued a
warrant to Elan to acquire 104,166 Common Shares at $21.60 per share and agreed
to pay Elan a royalty on the net revenues derived from sales of all of the
Company's products. The promissory notes each bear interest at the rate of prime
plus 1% (9 1/2% as of June 30, 1997), and the $5.0 million note is secured by
the technology rights the Company acquired in the transaction. Concurrently with
the closing of the Offering, Elan will acquire, directly from the Company in
private placement transactions, approximately 833,333 Common Shares (subject to
adjustment as described below) for approximately $10.2 million (the amounts
outstanding under the $10.0 million note) and approximately $5.1 million of
Common Shares at a price per share equal to the initial public offering price
hereunder. Simultaneously with such purchases, the Company will repay the Elan
Notes, including interest thereon. If the initial public offering price
hereunder is less than $12.00 per share, the number of Common Shares that Elan
will have the right to purchase for the approximately $10.2 million (the amounts
outstanding under the $10.0 million note) will be equal to approximately $10.2
million divided by the initial public offering price hereunder. If, as a result
of Elan's purchase of the Elan Shares, Elan's aggregate interest in the Common
Shares exceeds 19.9% of the outstanding Common Shares, Elan may elect to receive
non-voting preferred shares of the Company to the extent of such excess. Any
such preferred shares would rank pari passu with the Common Shares, be
non-voting and convertible into Common Shares initially on a one-for-one basis.
See "Risk Factors -- Potential Dilution; Absence of Dividends" and "Transactions
Related to the Offering."
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<PAGE> 63
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Shares as of November 1, 1997, and
as adjusted to reflect the issuance and sale of the 1,700,000 Common Shares
offered hereby, the sale of the Elan Shares in private placement transactions
concurrently with the closing of the Offering (1,258,833 Common Shares assuming
an initial public offering price of $12.00 per share) by (i) all those persons
or entities known by the Company to be beneficial owners of 5% or more of its
outstanding Common Shares ("5% Shareholders"), (ii) each director and each of
the Named Executive Officers and (iii) all directors and Named Executive
Officers as a group. The data presented are based on information provided to the
Company by the Named Executive Officers, the Company's directors and its 5%
Shareholders. See "Transactions Related to the Offering" and "Certain
Transactions."
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED
NUMBER OF ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) PRIOR TO OFFERING AFTER OFFERING
------------------------------------------------- --------- ----------------- --------------
<S> <C> <C> <C>
5% SHAREHOLDERS
Elan International Services, Ltd.(2)........... 104,166 3.0.% 21.1%
102 St. James Court
Flatts Smiths FL04 Bermuda
Newtek Ventures................................ 618,431 18.3% 9.7%
500 Washington Street, Suite 720
San Francisco, CA 94111
MBW Venture Partners, LP(3).................... 610,692 18.1% 9.6%
350 Second Street, Suite 8
Los Altos, CA 94022
Laboratoires Fournier, S.C.A................... 338,802 10.0% 5.3%
42, rue de Longvic 21300
Chenove France
Stephen C. Jacobsen............................ 264,166 7.8% 4.2%
274 South 1200 East
Salt Lake City, UT 84102
Novartis Pharmaceuticals Corporation(4)........ 244,791 7.3% 3.8%
59 Route 10
East Hanover, NJ 07936-1080
Utah Ventures.................................. 224,377 6.7% 3.5%
423 Wakara Way, Suite 206
Salt Lake City, UT 84108
CIT Group/Venture Capital, Inc................. 208,333 6.2% 3.3%
650 CIT Drive
Livingston, NJ 07039-5795
Vadex-Panama, S.A.............................. 208,333 6.2% 3.3%
PO Box 60040
Palo Alto, CA 94306-0040
DIRECTORS
James R. Weersing(5)........................... 2,760 * *
Ned M. Weinshenker, Ph.D.(6)................... 64,838 1.9% 1.0%
John W. Fara, Ph.D.(7)......................... 5,642 * *
Steven P. Sidwell(8)........................... 5,208 * *
Peter J. Wardle(9)............................. 0 * *
Warren Wood(10)................................ 902 * *
Michael T. Sember(11).......................... 0 * *
NAMED EXECUTIVE OFFICERS
W. Tim Miller(12).............................. 36,197 1.1% *
Thomas M. Parkinson, Ph.D(13).................. 30,648 1.0% *
Robert J. Lollini(14).......................... 35,416 1.1% *
Tim Lucas(15).................................. 4,973 * *
Executive Officers and directors as a group (11
persons)(16)................................ 186,584 5.3% 2.9%
</TABLE>
62
<PAGE> 64
- ---------------
* Less than 1%.
(1) Assumes 3,373,072 Common Shares issued and outstanding as of November 1,
1997. The inclusion herein of any Common Shares as beneficially owned does
not constitute an admission of beneficial ownership of those shares. Unless
otherwise indicated, each person listed has sole investment and voting
power with respect to the shares listed. In accordance with the rules of
the Securities and Exchange Commission, each person is deemed to
beneficially own any shares issuable upon exercise of share options or
warrants held by such person that are currently exercisable or that become
exercisable within 60 days after November 1, 1997, and any reference in
these footnotes to shares subject to share options or warrants held by the
person in question refers only to such shares.
(2) Elan International Services, Ltd. is a subsidiary of Elan. Includes 104,166
Common Shares subject to outstanding warrants. "Percentage Beneficially
Owned After the Offering" reflects the purchase of the Elan Shares
(1,258,333 Common Shares assuming an initial public offering price of
$12.00 per share) in private placement transactions, concurrently with the
closing of the Offering. See "Transactions Related to the Offering,"
"Business -- Collaborative Relationships and Licenses" and "Certain
Transactions."
(3) Includes 140,459 Common Shares held of record by Michigan Investment Fund,
LP, MBW Venture Partners, LP and Michigan Investment Fund, LP which are
managed, and assumed to be controlled, by MBW Management, Inc.
(4) Includes 6,250 Common Shares subject to warrants held by Novartis
Pharmaceuticals Corporation.
(5) Includes Common Shares held in the name of a revocable trust for which Mr.
Weersing serves as co-trustee along with his spouse. Mr. Weersing is a
general partner of MBW Management, Inc. Mr. Weersing disclaims beneficial
ownership of the shares beneficially owned by MBW Management, Inc. and its
affiliates.
(6) Includes 19,786 Common Shares held in the name of a pension plan over which
Dr. Weinshenker holds investment control. Includes 45,052 Common Shares
subject to options held by Dr. Weinshenker.
(7) Includes 5,642 Common Shares subject to options held by Dr. Fara.
(8) Includes 5,208 Common Shares subject to options held by Mr. Sidwell.
(9) Mr. Wardle is a general partner of Newtek Ventures, but disclaims
beneficial ownership of the Common Shares held by Newtek Ventures.
(10) Includes 902 Common Shares subject to options held by Mr. Wood.
(11) Mr. Sember is an executive officer of Elan. Mr. Sember disclaims any
beneficial ownership of shares owned beneficially by Elan.
(12) Includes 35,503 Common Shares subject to options held by Mr. Miller.
(13) Includes 30,648 Common Shares subject to options held by Dr. Parkinson.
(14) Includes 33,159 Common Shares subject to options held by Mr. Lollini.
(15) Includes 3,307 Common Shares subject to options held by Mr. Lucas.
(16) Includes 159,421 Common Shares subject to options.
DESCRIPTION OF CAPITAL SHARES
The authorized capital of the Company consists of 100 million Common
Shares, without par value and 10 million Preferred Shares, also without par
value. As of November 1, 1997, 3,373,072 Common Shares and 28,800 Series C
Redeemable Preferred Shares were outstanding. The Series C Preferred Shares will
be converted into 28,800 Common Shares concurrently with the closing of the
Offering. An additional 339,512 Common Shares may be issued upon the exercise of
outstanding share options, and an additional 169,791 shares may be issued upon
the exercise of outstanding warrants. As of November 1, 1997, there were
approximately 147 holders of record of the Common Shares.
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<PAGE> 65
COMMON SHARES
Subject to preferences that may be applicable to any then outstanding
Preferred Shares, holders of Common Shares are entitled to receive, ratably,
such dividends as may be declared by the Board of Directors out of funds legally
available therefore. In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Shares are entitled to share ratably in all
assets remaining after the payment of liabilities and the liquidation preference
of any then outstanding Preferred Shares. Holders of Common Shares have no
preemptive rights and no right to convert their Common Shares into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Shares. All outstanding Common Shares are, and all Common Shares to be
outstanding upon completion of the Offering will be, fully paid and
nonassessable. The holders of Common Shares are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. The
Company has not paid, and does not intend to pay, cash dividends on the Common
Shares for the foreseeable future.
PREFERRED SHARES
As of November 1, 1997, there were 28,800 Series C Preferred Shares issued
and outstanding. The Series C Preferred Shares are subject to mandatory
conversion, on a share-for-share basis, into Common Shares upon the closing of
an initial public offering and will be converted in connection with the closing
of the Offering.
The Board of Directors will have the authority to issue Preferred Shares in
one or more series and to affix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, redemption terms, liquidation preferences and the number of shares
constituting any series, without any further vote or action by the shareholders.
The issuance of Preferred Shares in certain circumstances may have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Shares with voting and conversion rights may adversely affect the
voting power and rights of the holders of Common Shares.
WARRANTS
The Company has issued four warrants which, in the aggregate, entitle the
holders thereof to acquire 169,791 Common Shares. On November 1, 1997, the
Company issued Novartis warrants to acquire, through November 1, 2002, 18,750
Common Shares at an exercise price of $21.60 per share. One-third of the
Novartis warrants are currently exercisable. Another one-third of the warrants
are exercisable if Novartis agrees to certain funding commitments under its
agreements with the Company for 1999, and the other one-third of the warrants is
exercisable if Novartis makes such funding commitments for the year 2000. Under
the Elan Agreements, Elan was issued a warrant to acquire, through April 19,
2002, 104,166 Common Shares at an exercise price of $21.60 per share. On
December 1, 1996, the Company issued ACH a warrant to acquire, through December
1, 2003, 44,791 Common Shares at an exercise price of $8.88 per share. On June
25, 1992, the Company issued a warrant to Silicon Valley Bank to acquire,
through June 24, 2002, 2,083 Common Shares at an exercise price of $4.80 per
share.
In connection with the closing of the Offering, the Company has agreed to
issue to the Representatives, warrants to purchase, after the first anniversary
of the date hereof, an aggregate of 170,000 Common Shares at a price per share
equal to (i) 125% of the initial public offering price set forth on the cover
page of this Prospectus after the first anniversary of the date of this
Prospectus or (ii) 150% of the initial public offering price set forth on the
cover page of this Prospectus after the third anniversary of the date of this
Prospectus. The Representatives's Warrants expire on the fifth anniversary of
the date of this Prospectus.
ANTI-TAKEOVER EFFECT OF UTAH LAW AND CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION
The Company's Articles of Incorporation require that any action required or
permitted to be taken by shareholders of the Company must be effected at a duly
called annual or special meeting of shareholders. Utah law provides that any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if one or more consents in
writing, setting forth the action
64
<PAGE> 66
to be taken, are signed by the holders of outstanding shares having at least the
minimum number of votes that would be necessary to take the action at a meeting
at which all shares entitle to vote on the matter were present and voted. This
provision generally applies to all Utah corporations formed after 1992 and all
Utah corporations formed before 1992 that have amended their articles of
incorporation to provide for actions by consent. The Company is not entitled to
take advantage of that consent provision because it was formed prior to 1992 and
its shareholders have not amended its Articles of Incorporation to allow consent
actions. Special meetings of the shareholders of the Company may be called only
by the Board of Directors, the Chief Executive Officer of the Company or by any
person or persons holding shares representing at least 10% of the outstanding
capital stock. See "Management -- Executive Officers, Directors and Key
Employees."
Utah has adopted legislation which is designed to delay the ultimate
success of a hostile tender offer for shares of a public company until that
tender offer has been approved by a majority of the shareholders. The
legislation applies to all corporations which have not opted out of its
provisions and which have more than 100 shareholders, maintain their principal
place of business or principal office in the State of Utah and where either 10%
or more of the corporation's shareholders reside in Utah or more than 10% of its
outstanding shares are owned by Utah residents. Under the terms of the Company's
Bylaws, the Company has opted out of these provisions.
The Company's Articles of Incorporation provide for the division of the
Board of Directors into three classes, as nearly equal in size as possible, with
staggered three year terms. See "Management." In addition, the Articles of
Incorporation provide that directors may be removed only for cause and only by
an affirmative vote of the holders of two-thirds of the Common Shares entitled
to vote. Further, any vacancy on the Board of Directors, however occurring,
including by reason of an increase in the number of persons comprising the Board
of Directors, may only be filled by vote of a majority of the directors then in
office. These provisions could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.
REGISTRATION RIGHTS
Pursuant to the Elan Agreements, at any time following the Offering, Elan
has the right, on not more than two occasions and subject to certain
limitations, to require the Company to use its best efforts to register under
the Securities Act the Elan Shares (1,258,333 Common Shares, assuming an initial
public offering price of $12.00 per share) and the 104,166 Common Shares it may
acquire upon exercising its warrant. The Elan Agreements also provide that, if
the Company proposes to file a registration statement under the Securities Act
with respect to an offering by the Company. Elan will be entitled to include all
or part of its shares in that registration, subject to the right of the managing
underwriter to exclude shares from registration to the extent their inclusion
would adversely affect the marketing of the shares to be sold. In connection
with the Offering, Elan has agreed not to sell or otherwise dispose of its
shares for a period of 180 days following the Offering. See "Shares Eligible for
Future Sale."
Under the Company's original agreements with Novartis, Dermion had certain
obligations with respect to registering the Dermion shares previously held by
Novartis. Under the terms of the 1997 Amendments, subject to certain exceptions
and limitations, after 180 days following the effective date of the Offering,
the holders of the lesser of (i) 52,083 Common Shares purchased pursuant to the
1997 Amendments (the "1997 Amendments Shares") or (ii) 75% of all 1997
Amendments Shares may require, on not more than two occasions, that the Company
use its best efforts to file a registration statement under the Securities Act
covering the resale of any such 1997 Amendments Shares. If the Company registers
any Common Shares under the Securities Act, either for its own account or for
the account of any other shareholders, the Company is required to notify the
holders of the 1997 Amendments Shares, and subject to certain limitations is
required to include in such registration the 1997 Amendments Shares requested by
such holders to be included therein. In connection with the Offering, the
holders of the 1997 Amendments Shares have agreed not to sell or otherwise
dispose of their shares for a period of 180 days following the Offering.
Under the terms of an agreement between the Company and CHIC, an affiliate
of CHCA, if the Company proposes to register any of its securities under the
Securities Act other than on Forms S-1 or S-8
65
<PAGE> 67
relating to an employee benefit plan, and other than on Form S-4, any holder of
at least 10,416 Common Shares issuable upon conversion of the warrant issued to
CHIC and any holder of 10,416 Common Shares acquired by CHIC pursuant to the
CHIC agreement, will be entitled to include such shares in that registration,
subject to the right of the managing underwriter to exclude any of such shares
from such registration to the extent that their inclusion would adversely affect
the marketing of the shares to be sold. In connection with the Offering, CHIC
has agreed not to sell or otherwise dispose of its shares for a period of 180
days following the Offering. See "Shares Eligible for Future Sale."
Under the terms of the stock purchase agreement (the "CIT Agreement")
between the Company and the CIT Group/Venture Capital, Inc., subject to certain
exceptions and limitations, after 180 days following the effective date of the
Offering, the holders of at least 208,333 Common Shares purchased pursuant to
the CIT Agreement (the "CIT Shares") may require, on not more than one occasion
within a 12-month period, that the Company use its best efforts to file a
registration statement under the Securities Act covering the resale of any such
CIT Shares. If the Company registers any Common Shares under the Securities Act,
either for its own account or for the account of any other shareholders prior to
March 8, 2000, the Company is required to notify the holders of the CIT Shares
and, subject to certain limitations, is required to include in such registration
the CIT Shares requested by such holders to be included therein. In connection
with the Offering, the holders of the CIT Shares have agreed not to sell or
otherwise dispose of their shares for a period of 180 days following the
Offering.
Under a preferred stock purchase agreement (the "Preferred Investors
Agreement"), between the Company and Newtek Ventures, MBW Venture Partners,
Michigan Investment Fund, Utah Ventures, Cordis Corporation, and certain other
investors (collectively, the "Preferred Investors"), subject to certain
exceptions and limitations, after 180 days following the effective date of the
Offering, the holders of at least Common Shares purchased pursuant to the
Preferred Investors Agreement may require, on not more than two occasions, that
the Company use its best efforts to file a registration statement under the
Securities Act covering the resale of any such Preferred Investor's Shares. If
the Company registers any Common Shares under the Securities Act, either for its
own account or for the account of any other shareholders prior to March 8, 2000,
the Company is required to notify the holders of the Preferred Investors Shares,
and subject to certain limitations is required to include in such registration
the Preferred Investors Shares requested by such holders to be included therein.
In connection with the Offering, certain of the Preferred Investors have agreed
not to sell or otherwise dispose of their shares for a period of 180 days
following the Offering. In addition, pursuant to the Preferred Investors
Agreement, all of the Preferred Investors are prohibited from selling or
otherwise disposing of their shares for a period of 90 days following the
Offering.
Under the terms of the stock purchase agreement (the "Common Investors
Agreement") between the Company and each of Newtek Ventures, MBW Venture
Partners, Michigan Investment Fund, and Vadex-Panama, S.A. (collectively, the
"Common Investors"), subject to certain exceptions and limitations, after 180
days following the effective date of the Offering, the holders of at least
Common Shares purchased pursuant to the Common Investors Agreement (the "Common
Investors Shares") may require, on not more than one occasion within a 12-month
period, that the Company use its best efforts to file a registration statement
under the Securities Act covering the resale of any such Common Investor's
Shares. If the Company registers any Common Shares under the Securities Act,
either for its own account or for the account of any other shareholders prior to
February 19, 2001, the Company is required to notify and, subject to certain
limitations, at the request of the holder of Common Investors Shares is required
to include in such registration the Common Investors Shares requested to be
included therein. In connection with the offering, the Common Investors have
agreed not to sell or otherwise dispose of their shares for a period of 180 days
following the Offering. See "Shares Eligible for Future Sale."
The Company has also granted certain demand and piggy-back registration
rights to the Representatives with respect to the 170,000 Common Shares issuable
upon exercise of the Representatives' Warrants. See "Underwriting."
66
<PAGE> 68
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. will be the transfer agent and
registrar for the Common Shares.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 6,360,204 Common Shares. In addition, the Company has reserved for
issuance 679,303 shares issuable upon exercise of outstanding options and
warrants, including the Representatives' Warrants. The 1,700,000 Common Shares
offered hereby will be freely transferable without restriction or further
registration under the Securities Act, except for shares which may be acquired
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining Common Shares held by existing shareholders are
"restricted securities" as that term is defined in Rule 144. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for exemption from registration under Rules 144 or 701 under the
Securities Act or otherwise. Pursuant to certain "lock-up" agreements, the
Company's directors, officers and certain of its shareholders who collectively
hold an aggregate of 4,560,934 Common Shares, together with the Company, have
agreed, for a period of 180 days following the date of this Prospectus, not to
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any Common Shares without the
prior written consent of EVEREN Securities, Inc. Following the lock-up periods,
approximately 1,903,533 Common Shares will be eligible for sale in the public
market without restriction under Rule 144(k) and an additional 79,808 Common
Shares will be eligible for sale subject to certain volume, manner of sale and
other limitations under Rule 144. Of the approximately 76,418 restricted shares
held by existing shareholders of the Company not subject to lock-up agreements,
all such Common Shares will be eligible for immediate sale in the public market
without restriction under Rule 144(k). In addition, holders of stock options or
warrants exercisable for an aggregate of approximately 220,227 Common Shares
have entered into agreements prohibiting sale of the underlying Common Shares
for 180 days following the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding Common Shares
(63,602 shares immediately after the Offering) or (ii) the average weekly
trading volume in the Common Shares during the four calendar weeks preceding
such sale, subject to the filing of a Form 144 with respect to such sale and
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the volume, manner of sale and other limitations described
above.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permit non-affiliates to sell their Rule
701 shares without having to comply with the public information, holding-period,
volume-limitation or notice provisions of Rule 144 and permit affiliates to sell
their Rule 701 shares without having to comply with the Rule 144 holding period
restrictions, in each case commencing 90 days after the date of this Prospectus.
The holders of 4,036,010 Common Shares and warrants to purchase 337,708
Common Shares have certain registration rights. See "Description of Capital
Shares -- Registration Rights."
67
<PAGE> 69
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom EVEREN Securities, Inc.
is acting as representative (the "Representatives"), have severally agreed to
purchase, and the Company has agreed to sell to the Underwriters, the following
respective number of Common Shares.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
EVEREN Securities, Inc.......................................
Hanifen, Imhoff Inc..........................................
Wedbush Morgan Securities....................................
----------------
Total.............................................. 1,700,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all Common Shares offered hereby if any such
shares are purchased.
The Underwriters propose to offer the Common Shares to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow to selected dealers and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the public offering of the Common Shares, the offering price and
other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exerciseable at any
time during the 30-day period after the date of this Prospectus, to purchase up
to an additional 255,000 Common Shares at the initial public offering price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering. To the extent
the option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of Common Shares set forth next to such Underwriter's name
in the preceding table bears to the total number of shares listed in the table.
The Company has agreed to issue to the Representatives warrants to
purchase, after the first anniversary of the date hereof, up to an aggregate of
170,000 Common Shares, at a price equal to (i) 125% of the initial public
offering price set forth on the cover page of this Prospectus after the first
anniversary of the date of this Prospectus or (ii) 150% of the initial public
offering price set forth on the cover page of this Prospectus after the third
anniversary of the date of this Prospectus. Holders of the Representatives'
Warrants have been granted certain demand and piggy-back registration rights
under the Securities Act with respect to the securities issuable upon exercise
of the Representatives' Warrants. See "Description of Shares -- Registration
Rights" and "Shares Eligible For Future Sale." The Representatives' Warrants
expire on the fifth anniversary of the date of this Prospectus.
The Company has also granted the Representatives a nonaccountable expense
allowance of $245,000.
The offering of the Common Shares is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the Offering without notice. The Underwriters
reserve the right to reject an order for the purchase of Common Shares in whole
or in part.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase Common Shares in the open market to cover syndicate short positions
or to stabilize the price of the Common Shares. Finally, the underwriting
syndicate may reclaim selling concessions from syndicate members in the
Offering, if the syndicate repurchases previously distributed Common Shares in
syndicate covering transactions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the
68
<PAGE> 70
Common Shares above independent market levels. The Underwriters are not required
to engage in these activities, and may end any of these activities at any time.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The executive officers, directors and certain employees of the Company and
certain other shareholders have agreed that they will not, without the prior
written consent of EVEREN Securities, Inc., offer, sell or otherwise dispose of
any Common Shares, options or warrants to acquire Common Shares or securities
exchangeable for or convertible into Common Shares for a period of 180 days
after the day of this Prospectus. The Company has agreed that it will not,
without the prior written consent of EVEREN Securities, Inc., offer, sell,
contract, grant any option to purchase or otherwise dispose of any Common
Shares, options or warrants to acquire Common Shares or securities exchangeable
for or convertible into Common Shares for a period of 180 days after the date of
this Prospectus, except for securities issued under its Stock Option Plan or
Share Incentive Plan, the Elan Agreements or upon exercise of currently
outstanding stock options or warrants. See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
included in the Offering will be determined by negotiations between the Company
and the Representatives. Among the factors considered in determining such price
will be the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management and the present
state the Company's development, its past and present operations and financial
performance, the prospects for future earnings of the Company, the present state
of the Company's research and development programs, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable industries,
and the current prevailing condition in the securities markets, including
current market valuations of publicly traded companies that are comparable to
the Company.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Parsons Behle & Latimer, Salt Lake City, Utah. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois, which
will rely on the opinion of Parsons Behle & Latimer with respect to certain
matters regarding Utah law.
EXPERTS
The financial statements at June 30, 1996 and 1997, and for each of the
three years in the period ended June 30, 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance on such report given
upon the authority of such firm as experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Patents and Proprietary Rights" have been reviewed and approved by
Workman, Nydegger & Seeley, patent counsel for the Company, as experts on such
matters, and are included herein in reliance upon that review and approval.
69
<PAGE> 71
ADDITIONAL INFORMATION
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities and Exchange Act of
1934, as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish to its shareholders annual
reports containing financial statements audited by an independent public
accounting firm and will make available copies of quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
The Company has filed with the Commission, Washington, D.C., 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
Common Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at N.W.,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
70
<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
IOMED, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1996............................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and
1995............................................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended June
30, 1997, 1996 and 1995.......................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and
1995............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at September 30, 1997 and June 30, 1997....... F-18
Condensed Consolidated Statements of Operations for the Three Months Ended September
30, 1997 and 1996................................................................ F-19
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September
30, 1997 and 1996................................................................ F-20
Notes to Condensed Consolidated Financial Statements................................ F-21
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
IOMED, Inc.
We have audited the accompanying consolidated balance sheets of IOMED, Inc. as
of June 30, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IOMED, Inc. at
June 30, 1997 and 1996, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Salt Lake City, Utah
August 4, 1997, except for
Note 15 as to which the date
is November 7, 1997
F-2
<PAGE> 74
IOMED, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1996 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 4,507,000 $ 6,346,000
Accounts receivable, less allowance for doubtful accounts of
$76,000 in 1996 and $28,000 in 1997......................... 1,054,000 1,189,000
Inventories.................................................... 1,162,000 714,000
Prepaid expenses............................................... 5,000 12,000
----------- ------------
Total current assets................................... 6,728,000 8,261,000
Equipment and furniture, net..................................... 477,000 385,000
Other assets..................................................... 46,000 18,000
----------- ------------
Total Assets........................................... $ 7,251,000 $ 8,664,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable......................................... $ 118,000 $ 171,000
Accrued liabilities............................................ 952,000 944,000
Current portion of long-term obligations....................... 44,000 2,000
----------- ------------
Total current liabilities.............................. 1,114,000 1,117,000
Commitments
Minority interest................................................ 875,000 898,000
Redeemable, convertible preferred shares, no par value;
10,000,000 authorized; issued and outstanding shares of all
series
38,800 in 1996 and 36,000 in 1997.............................. 1,270,000 900,000
Subordinated, convertible debt................................... -- 15,240,000
Shareholders' equity (deficit):
Common shares, no par value; 100,000,000 shares authorized;
issued and outstanding 2,925,056 shares in 1996 and
3,134,392 shares in 1997.................................... 11,492,000 12,047,000
Accumulated deficit............................................ (7,500,000) (21,538,000)
----------- ------------
Total shareholders' equity (deficit)................... 3,992,000 (9,491,000)
----------- ------------
Total liabilities and shareholders' equity (deficit)... $ 7,251,000 $ 8,664,000
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 75
IOMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Product sales.......................................... $6,964,000 $6,829,000 $ 7,483,000
Contract research revenue, royalties and license
fees................................................ -- 2,409,000 1,800,000
--------- ---------- ------------
Total revenues................................. 6,964,000 9,238,000 9,283,000
Operating costs and expenses:
Cost of products sold.................................. 3,369,000 3,138,000 3,338,000
Research and development............................... 1,467,000 1,099,000 1,488,000
Selling, general and administrative.................... 3,338,000 3,283,000 3,501,000
Non-recurring charges.................................. -- 430,000 15,059,000
--------- ---------- ------------
Total costs and expenses....................... 8,174,000 7,950,000 23,386,000
--------- ---------- ------------
Income (loss) from operations............................ (1,210,000) 1,288,000 (14,103,000)
Interest expense......................................... 32,000 9,000 242,000
Interest income and other, net........................... 120,000 167,000 291,000
--------- ---------- ------------
Income (loss) from continuing operations before income
taxes and minority interest............................ (1,122,000) 1,446,000 (14,054,000)
Minority interest........................................ -- (17,000) 23,000
Income tax expense (benefit)............................. (173,000) (79,000) 5,000
--------- ---------- ------------
Income (loss) from continuing operations................. (949,000) 1,542,000 (14,082,000)
Income from discontinued operations, net of income
taxes.................................................. 290,000 201,000 44,000
--------- ---------- ------------
Net income (loss)........................................ $ (659,000) $1,743,000 $(14,038,000)
========= ========== ============
Income (loss) per common share amounts:
Income (loss) from continuing operations................. $ (.46) $ .48 $ (4.48)
Income from discontinued operations...................... .14 .06 .01
--------- ---------- ------------
Net income (loss)........................................ $ (.32) $ .54 $ (4.47)
--------- ---------- ------------
Shares used in computing per share amounts............... 2,090,007 3,222,496 3,140,054
========= ========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 76
IOMED, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK*
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994..................... 2,032,741 $ 7,639,000 $ (8,584,000) $ (945,000)
Stock options exercised.................... 14,930 9,000 -- 9,000
Conversion of redeemable, convertible
preferred shares........................ 1,380 3,000 -- 3,000
Net loss................................... -- -- (659,000) (659,000)
---------
-
----------- ------------ -----------
BALANCE AT JUNE 30, 1995..................... 2,049,051 7,651,000 (9,243,000) (1,592,000)
Stock options exercised.................... 43,974 23,000 -- 23,000
Conversion of redeemable, convertible
preferred shares........................ 494,193 895,000 -- 895,000
Conversion of subordinated debt............ 337,838 2,923,000 -- 2,923,000
Net income................................. -- -- 1,743,000 1,743,000
---------
-
----------- ------------ -----------
BALANCE AT JUNE 30, 1996..................... 2,925,056 11,492,000 (7,500,000) 3,992,000
Stock options exercised.................... 6,483 5,000 -- 5,000
Conversion of redeemable, convertible
preferred shares........................ 165,651 300,000 -- 300,000
Sale of common shares for cash............. 37,202 250,000 -- 250,000
Net loss................................... -- -- (14,038,000) (14,038,000)
--------- ----------- ------------ -----------
BALANCE AT JUNE 30, 1997..................... 3,134,392 $12,047,000 $(21,538,000) $(9,491,000)
========= =========== ============ ===========
</TABLE>
- ---------------
* Adjusted to reflect 1-for-4.8 reverse stock split and elimination of par
value -- see Note 15.
See accompanying notes.
F-5
<PAGE> 77
IOMED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ (659,000) $1,743,000 $(14,038,000)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 570,000 400,000 267,000
Write-off of in-process research and development....... -- -- 15,059,000
Non-cash interest expense.............................. -- -- 240,000
Minority interest and other non-cash charges........... (17,000) (9,000) 34,000
Changes in assets and liabilities:
Accounts receivable................................. (6,000) (122,000) (444,000)
Inventories......................................... (317,000) 186,000 (196,000)
Prepaid expenses and other assets................... (22,000) 9,000 (6,000)
Trade accounts payable.............................. (96,000) (41,000) 53,000
Other current liabilities........................... 249,000 83,000 25,000
---------- ---------- ------------
Net cash provided by (used in) operating activities...... (298,000) 2,249,000 994,000
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of discontinued operations............ -- -- 1,000,000
Purchases of equipment and furniture..................... (156,000) (316,000) (231,000)
---------- ---------- ------------
Net cash provided by (used in) investing activities...... (156,000) (316,000) 769,000
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares.................. 9,000 23,000 255,000
Proceeds from sale of minority interest.................. -- 892,000 --
Payments on term loans................................... (165,000) (132,000) (39,000)
Redemptions of redeemable preferred shares............... (70,000) (70,000) (70,000)
Other.................................................... -- -- (70,000)
---------- ---------- ------------
Net cash provided by (used in) financing activities...... (226,000) 713,000 76,000
---------- ---------- ------------
Net increase (decrease) in cash and cash equivalents..... (680,000) 2,646,000 1,839,000
Cash and cash equivalents at beginning of year........... 2,541,000 1,861,000 4,507,000
---------- ---------- ------------
Cash and cash equivalents at end of year................. $1,861,000 $4,507,000 $ 6,346,000
========== ========== ============
Supplemental disclosures of cash flow information
Cash paid for interest................................... $ 32,000 $ 9,000 $ 2,000
Cash paid for income taxes............................... -- -- $ 61,000
Supplemental schedule of non-cash investing and financing
activities
Issuance of subordinated, convertible debt for purchase
of in-process research and development................. -- -- $ 15,000,000
Preferred shares converted to common shares.............. $ 3,000 $ 895,000 300,000
Subordinated debt converted to common shares............. -- 2,923,000 --
</TABLE>
See Accompanying Notes.
F-6
<PAGE> 78
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
IOMED, Inc., a Utah corporation (the "Company"), develops, manufactures and
commercializes controllable drug delivery systems using iontophoresis
technology.
Discontinued Operations
On December 31, 1996, the Company sold the assets of its Motion Control
Division, which was engaged in the research, development, manufacture and sale
of advanced myoelectric prosthetic devices. Accordingly, the consolidated
statements of operations for the years ended June 30, 1996 and 1995 have been
restated to present the results of operations of the Motion Control Division as
a discontinued operation (see Note 4).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its 80% owned subsidiary, Dermion, Inc. ("Dermion"). Dermion was formed in
April 1996 to conduct advanced research and development of iontophoretic drug
delivery systems on its own behalf and on behalf of third party clients. The
remaining 20% interest of Dermion is reflected as minority interest in the
accompanying financial statements. All significant intercompany transactions and
accounts have been eliminated.
Cash Equivalents
The Company considers all highly-liquid investments with maturities of
three months or less, when purchased, to be cash equivalents.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. Cash and cash equivalents are held in federally insured financial
institutions or invested in high grade short-term commercial paper issued by
major United States corporations. The Company sells its products primarily to,
and has trade accounts receivable with, independent durable medical equipment
dealers in the United States and abroad. Less than 10% of product sales are to
foreign customers. As a general policy, collateral is not required for accounts
receivable; however, the Company maintains an allowance for losses based upon
expected collections of accounts receivable. Additionally, customers' financial
condition and credit worthiness are regularly evaluated and historical losses
have not been material. During the periods presented, none of the Company's
customers accounted for more than 10% of net product sales. Accordingly, the
Company considers concentrations of credit risk with respect to trade accounts
receivable to be low.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories consisted of the following
and, at June 30, 1996, included $613,000 in inventory associated with the
Company's discontinued operations:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- --------
<S> <C> <C>
Raw materials...................................... $ 862,000 $568,000
Work-in-progress................................... 72,000 31,000
Finished goods..................................... 228,000 115,000
---------- --------
$1,162,000 $714,000
========== ========
</TABLE>
F-7
<PAGE> 79
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Equipment and Furniture
Equipment and furniture are stated at cost. Depreciation and amortization
is computed using the straight-line method over estimated useful lives of three
to five years. Leasehold improvements are amortized over the term of the lease
or the useful life of the improvements, whichever is shorter. Equipment and
furniture consisted of the following and, at June 30, 1996, included $50,000 in
equipment net of accumulated depreciation associated with the Company's
discontinued operations:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Manufacturing equipment........................... $ 1,961,000 $ 1,896,000
Office and research and development equipment..... 1,294,000 1,381,000
Leasehold improvements............................ 632,000 608,000
---------- ----------
3,887,000 3,885,000
Less accumulated depreciation and amortization.... (3,410,000) (3,500,000)
---------- ----------
$ 477,000 $ 385,000
========== ==========
</TABLE>
Revenue Recognition
Revenues on product sales are generally recognized upon shipment. Contract
research revenue and license fees are recognized as earned.
Patent Development Costs
In connection with its research and development efforts, the Company incurs
certain costs in the preparation, application, filing, maintenance and defense
of patents and trademarks. Where such costs primarily relate to patents and
trademarks covering technologies or products which are under development or in
the early stages of commercialization, the Company expenses such costs as
incurred.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options rather than
adopting the alternative fair value accounting provided for under FASB Statement
No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under APB 25,
because the exercise price of the Company's share options equals the market
price of the underlying shares on the date of grant, the Company does not
recognize any compensation expense.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings (Loss) Per Share
The Company's net income (loss) per share is based upon the weighted
average number of common shares outstanding during the periods. Common share
equivalents (stock options, warrants, convertible
F-8
<PAGE> 80
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
preferred shares and convertible debt), as determined using the treasury stock
method, have been excluded from the computations in those periods where their
inclusion would have an antidilutive effect. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, shares and equivalent
shares issued by the Company at prices below the assumed public offering price
during the twelve-month period prior to the proposed offering have been included
in the calculation as if they were outstanding for all periods presented (using
the treasury stock method and using the assumed midpoint of the initial public
offering price range).
New Accounting Pronouncements
In 1997, the FASB issued three new statements, SFAS No. 128-Earnings per
Share, SFAS No. 130-Reporting Comprehensive Income and SFAS No. 131-Disclosures
about Segments of an Enterprise and Related Information. As of June 30, 1997,
these statements were either not effective or not yet adopted by the Company.
The Company believes the new standards will not have a material impact on the
Company's financial statements.
Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year financial statements
to conform to the financial statement presentation included herein.
2. PURCHASE OF IN-PROCESS RESEARCH AND DEVELOPMENT
In March 1997, the Company entered into agreements with Elan Corporation,
plc ("Elan"), an international developer of advanced drug delivery systems, to
obtain an exclusive, worldwide license for the commercial development of certain
of Elan's in-process research and development in the field of iontophoretic drug
delivery, including both issued and pending patents, know-how and clinical data.
Pursuant to the agreements, the Company paid Elan a one time fee of $15,000,000,
issued warrants to purchase up to 500,000 common shares at a price of $21.60 per
share and agreed to pay Elan certain royalties on net revenues derived from
sales of its iontophoretic drug delivery products. Both the number and share
price of the warrants are subject to adjustment for certain corporate
transactions. Payment of the fee was funded by the issuance of two subordinated
convertible notes to Elan in an aggregate principal amount of $15,000,000 (See
Notes 3 and 7).
3. NON-RECURRING CHARGES
The intended clinical applications, as well as alternative future
applications, of the technologies purchased from Elan (see Note 2) are in the
early stages of research, design and clinical development, subject to numerous
technological, regulatory, and commercial risks and, therefore, represent
in-process research and development. Accordingly, during fiscal 1997, the
Company recorded a non-recurring charge of $15,059,000 reflecting the write-off
of the in-process research and development purchased, including the fee and
related transaction costs.
During fiscal 1996, a suit was filed against the Company by a competitor
alleging, among other things, that a recently introduced product of the Company
infringed upon the competitor's trade dress. In February 1996, a federal court
granted the plaintiff's request for a preliminary injunction. Thereupon, the
F-9
<PAGE> 81
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company entered into a settlement agreement with the plaintiffs. The total costs
incurred in connection with the suit were approximately $430,000, which amount
includes legal fees, court costs and damages paid to the plaintiff, legal fees
incurred by the Company and inventory rework costs. The settlement agreement
will not have any material impact on the Company's ability to continue to
manufacture and sell its products, including the new product which gave rise to
the litigation.
4. DISCONTINUED OPERATIONS
In December 1996, the Company sold the assets of its Motion Control
Division, which was engaged in the research, development, manufacture and sale
of myoelectric prosthetic devices. In addition, the Company granted a worldwide,
exclusive license to certain patent rights covering the products manufactured by
the division to the purchaser. Proceeds from the sale were $1,000,000 and the
Company is entitled to receive royalties on future product sales of the
purchaser. There was no significant gain or loss recognized on the sale.
Included in accounts receivable at June 30, 1996 is $351,000 associated with the
Company's discontinued operations. The results of operations of the Motion
Control Division prior to its sale have been classified as discontinued
operations in the accompanying statements of operations. No interest expense has
been allocated to discontinued operations and both federal and state income
taxes have been calculated and allocated based upon statutory rates. A summary
of the results of discontinued operations is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- --------
<S> <C> <C> <C>
Net product sales....................... $2,081,000 $2,186,000 $957,000
Income taxes............................ $ 173,000 $ 120,000 $ 26,000
Income from discontinued operations..... $ 290,000 $ 201,000 $ 44,000
</TABLE>
5. INVESTMENTS IN MARKETABLE DEBT SECURITIES
Debt securities are classified as held-to-maturity when the Company has the
intent and ability to hold the security to maturity. Held-to-maturity securities
are stated at amortized cost, adjusted for amortization of premiums and
accretion of discounts to maturity, which approximates quoted fair market
values. Such amortization as well as interest earned is included in interest
income. As of June 30, 1996 and 1997, all investments were classified as
held-to-maturity and consisted of United States corporate securities totaling
$3,757,000 and $4,635,000, respectively, and are included with cash and cash
equivalents.
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Payroll and related benefits........................... $431,000 $436,000
Accrued facilities costs............................... 146,000 69,000
Professional fees...................................... 70,000 126,000
Warranty............................................... 76,000 10,000
Other.................................................. 229,000 303,000
-------- --------
$952,000 $944,000
======== ========
</TABLE>
In 1995, the Company's board of directors approved management's plan to
consolidate the Company's operating facilities. Under the plan, certain office
facilities currently under lease through December 1999 have been left idle.
Accordingly, the Company recorded charges and accrued facilities costs in the
amount of $180,000 and $53,000 in 1995 and 1996, respectively, which represents
the total committed lease obligation for
F-10
<PAGE> 82
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the idle space, plus estimated maintenance and construction costs. At June 30,
1997, approximately $69,000 of these charges remained in accrued liabilities.
7. SUBORDINATED, CONVERTIBLE DEBT
In connection with the purchase of in-process research and development from
Elan (see Note 2), the Company issued two promissory notes to Elan, the A Note
and the B Note, in the amount of $10,000,000 and $5,000,000, respectively. Both
notes are subordinated to any existing or future indebtedness incurred to
finance working capital or the purchase of fixed assets in the normal course of
business. The carrying value of these notes approximates fair market value since
interest rates are based upon current market rates.
The A Note accrues interest at prime plus one percent (9.5% at June 30,
1997), payable at maturity. Upon the completion of an initial registered public
offering of common shares or in any event on April 1, 1999, the note, together
with all accrued interest thereon, will be exchanged for common shares of the
Company. If the triggering event is an initial registered public offering, the
Company will issue 833,333 common shares, as adjusted for certain corporate
transactions, in exchange for the note. If an initial public offering is not
previously consummated, then on April 1, 1999, in exchange for the indebtedness
under the A Note, the Company will issue shares at an exchange price of $12.00
per share, which exchange price is subject to adjustment under certain
conditions.
The B Note accrues interest at prime plus one percent (9.5% at June 30,
1997). The B Note plus any accrued and unpaid interest thereon will become due
and payable immediately upon the completion of an initial registered public
offering of common shares. If not pre-paid pursuant to an initial registered
public offering or otherwise, the B Note, becomes due and payable in five equal
installments of principal of $1,000,000 on each of the fifth, sixth, seventh,
eighth and ninth anniversaries of the note, together, in each case with any
accrued and unpaid interest thereon.
In June 1993, the Company entered into a research and development agreement
with Laboratoires Fournier, a French pharmaceutical company ("Fournier") to
collaborate in the joint development and commercialization of certain drug
delivery systems. In connection with this transaction, in July 1993, the Company
borrowed $3,000,000 ($2,923,000, net of debt issuance costs) from Fournier
pursuant to a subordinated, convertible note. In March 1996, the companies
reached a mutual agreement to terminate their collaborative development efforts.
Among other things, the agreement provided for the conversion of the $3,000,000
subordinated, convertible note, at a conversion rate of $8.88 per share, into
337,838 common shares.
8. COMMITMENTS
The Company leases space and certain equipment under noncancellable
operating lease agreements that expire at various dates through December 1999.
Rental expense for such leases was $225,000, $227,000 and $218,000 for the years
ended June 30, 1995, 1996 and 1997, respectively. It is generally expected that,
in the normal course of business, operating leases that expire will be renewed
or replaced by other leases with similar terms. Future minimum lease payments
under noncancellable operating leases (with initial or remaining lease terms in
excess of one year) at June 30, 1997 were $86,000.
9. ROYALTY AGREEMENTS
The Company is the licensee under a royalty agreement with the University
of Utah Research Foundation. This agreement provides for the payment of
royalties to the licensor based upon net sales of the products under royalty
until the year 2006. Royalty expense in each of the three years in the period
ended June 30, 1997 was not material.
F-11
<PAGE> 83
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. REDEEMABLE, CONVERTIBLE PREFERRED SHARES
In connection with a reorganization of the Company in fiscal 1988, the
Company issued 878,254 shares of $.001 par value redeemable convertible
preferred shares in three series; Series A, Series B and Series C. Pursuant to
the terms of such preferred shares, the Series A shares were redeemed in equal
installments beginning in July 1992 through July 1996 at a redemption price of
$25.00 per share and the Series B shares (828,254 shares with a carrying value
of $1,500,000) were converted prior to July 15, 1996 into common shares on a
share for share basis at the equivalent of $1.811 per share.
The Series C preferred shares outstanding as of June 30, 1997 are comprised
of 36,000 shares with an aggregate redemption value of $900,000. The Series C
preferred shares are redeemable at $25.00 per share in five equal annual
installments beginning in July 1997. Unless converted to common shares,
mandatory redemption requirements on the Series C preferred shares are $180,000
annually from 1998 through 2002. The Company may redeem all or part of the
preferred shares to the extent of its unreserved and unrestricted retained
earnings at any time prior to the required redemption dates.
Prior to redemption, each share of the Series A, B and C preferred shares
either are, or were, as applicable, convertible on a share for share basis, at
the option of the holder, into common shares. The conversion ratio is subject to
adjustment based on the issue price of additional shares, options, or rights to
common shares issued. Each outstanding preferred share will automatically
convert to one common share upon the sale of common shares of the Company
pursuant to a registration statement under the Securities Act of 1933, the
public offering price of which is not less than $5.4331 per share and which
results in gross proceeds to the Company of at least $5,000,000.
Each share of the Series A, B and C preferred shares has a voting right
equal to one vote for each common share into which the preferred share could be
converted as outlined above. The holders of the preferred shares have voting
rights and powers equal to those of the holders of common shares and vote with
the holders of common shares and not as a separate class. Under no circumstances
are the holders of any series of preferred shares entitled to vote separately on
any matter.
Dividends are non-cumulative and are to be paid on the preferred shares
only as authorized by the Board of Directors. In the event of liquidation of the
Company, each outstanding preferred share converts into one common share. No
dividend (other than a dividend payable solely in common shares) may be declared
or paid on common shares unless an equal or greater dividend per share has first
been declared and paid on each preferred share. Each preferred share, regardless
of its series, must be paid the same dividend per share. No dividends have been
declared or paid to date.
11. RESEARCH & DEVELOPMENT
In July 1995, the Company entered into an interim research and development
agreement with Ciba-Geigy Corporation ("Ciba"), an affiliate of a Swiss
pharmaceutical company, to evaluate the feasibility of delivering certain Ciba
compounds using the Company's iontophoretic drug delivery technologies. In March
1996, this interim agreement was superseded by a long-term research and
development agreement with Ciba. In conjunction with the research and
development agreement, the Company formed Dermion, a wholly-owned subsidiary
established to conduct advanced iontophoretic drug delivery systems development.
The Company contributed cash, fixed assets and non-exclusive licenses to certain
technology, valued at a historical cost of approximately $1,300,000 to Dermion,
in exchange for common shares. Concurrently, Ciba acquired a 20% equity interest
in Dermion for $1,000,000 in cash. Pursuant to a separate shareholder's
agreement, Ciba is entitled to a premium of up to $1,250,000 in the event of a
change in control of Dermion.
Ciba-Geigy Corporation and Sandoz Corporation merged and, as a result,
formed Novartis Pharmaceuticals Corporation.
F-12
<PAGE> 84
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Currently, the term of the agreement extends through December 31, 1998. The
agreement automatically renews for additional one year terms, unless terminated,
by either party, with written notice six months prior to any anniversary date.
During the term of the research and development agreement, Novartis is obligated
to provide Dermion with research funding for the development of proprietary
iontophoretic drug delivery systems designed to deliver Novartis compounds.
Also, during the term of the agreement, Novartis has certain rights to the
Company's technologies for certain specific therapeutic indications using
Novartis proprietary drugs or specified generic compounds. The agreement further
provides that Dermion will be entitled to milestone payments upon the
achievement of certain performance targets and to future royalties on Novartis'
sales of products developed pursuant to the research. Dermion is currently
devoting the majority of its research and development capabilities to the
development of these systems for Novartis. Research funding payments and license
fees paid pursuant to the agreement with Novartis totaled $2,409,000 and
$1,750,000, respectively, in fiscal years ended June 30, 1996 and 1997. As of
June 30, 1997, the Company had a receivable, in the amount of $301,000, due from
Novartis, for research services rendered, which is included in accounts
receivable in the accompanying balance sheet.
12. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) savings plan for its full-time
employees. The Company makes a matching contribution based on a percentage of
the contributions of participating employees. The Company contributed
approximately $24,000 during each of the years ended June 30, 1995 and 1996 and
approximately $19,000 during fiscal 1997.
13. INCOME TAXES
Deferred taxes result from differences in the carrying value of various
assets and liabilities between income tax reporting and financial reporting
purposes. These differences arise from differing depreciation methods, and other
reserves that are deductible in different periods for tax and financial
reporting purposes.
The approximate tax effect of temporary differences, net operating loss
carryforwards and tax credit carryforwards as of June 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $1,602,000 $ 1,515,000
Book in excess of tax depreciation............... 307,000 264,000
Book in excess of tax amortization............... -- 5,502,000
Tax credit carryforwards......................... 525,000 577,000
Reserves......................................... 326,000 265,000
Other............................................ -- --
----------- -----------
Total deferred tax assets.......................... 2,760,000 8,123,000
Valuation allowance................................ (2,760,000) (8,123,000)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
There were no significant deferred tax liabilities in 1996 or 1997. The
valuation allowance increased by $5,363,000 during the fiscal year.
F-13
<PAGE> 85
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
There were no deferred income tax provisions in any of the years presented.
Significant components of the provision for income taxes attributable to
continuing operations are as follows.
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- ------
<S> <C> <C> <C>
Current:
Federal................................... $(158,000) $(72,000) $5,000
State..................................... (15,000) (7,000) --
--------- -------- ------
Total current provision..................... $(173,000) $(79,000) $5,000
========= ======== ======
</TABLE>
The reconciliation of income taxes at the statutory United States federal
income tax rate and the Company's effective income tax rate attributable to
continuing operations is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
United States statutory rate (percentage)........... (34.0)% 34.0% (34.0)%
State tax, net of federal tax benefit............... (3.3)% 3.3% (3.3)%
Credits............................................. (8.1)% (1.7)% (0.4)%
Effect of NOL carryforward and valuation
allowance......................................... 27.3% (42.0)% 37.3%
Other............................................... 2.7% 0.9% 0.4%
----- ---- -----
Effective income tax rate (percentage).............. (15.4)% (5.5)% --%
===== ==== =====
</TABLE>
As of June 30, 1997, the Company had approximately $4,147,000 in federal
and state net operating loss carryforwards, and $577,000 in federal tax credit
carryforwards, that expire from 2001 through 2012. Utilization of the Company's
net operating loss and credit carryforwards is limited to the future taxable
income of the Company. Under the "change of ownership" provisions of the
Internal Revenue Code, utilization of these net operating loss and credit
carryforwards may be subject to substantial annual limitation.
14. STOCK OPTIONS AND WARRANTS
The Company has an Employee Stock Option Plan (the Plan) for which 520,833
common shares have been reserved. The Plan allows grants of incentive options
and nonqualified options to purchase common shares at a price that is not less
than the fair market value on the date of grant. The option price and dates the
options become exercisable and expire are determined by the Board of Directors
on an option-by-option basis.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method. The fair value of these options was estimated at the date
of grant using a Minimum Value option pricing model with the following weighted
average assumptions for fiscal years ended June 30, 1996 and 1997: risk-free
interest rate of approximately 6.4% and 6.3%; dividend yield of 0%; and a
weighted-average expected life of the option of 6 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Because the effect of
SFAS No. 123-Accounting for Stock Based Compensation is prospective, the initial
impact on pro forma net income (loss) may not be representative of compensation
expense in future years. The effect on the Company's pro forma results for each
of the fiscal years ended June 30, 1996 and 1997 was not material (less than
$0.05 per share).
F-14
<PAGE> 86
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity, and related information for the years
ended June 30, 1995, 1996, and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 272,031 -- 293,620 $3.41 328,610 $4.51
Granted................................. 60,729 -- 84,271 6.19 15,417 6.72
Exercised............................... (14,930) -- (43,974) 0.48 (6,483) 1.01
Canceled................................ (24,210) -- (5,307) 4.37 (7,163) 4.18
------- ------- -------
Outstanding at end of year.............. 293,620 -- 328,610 $4.51 330,381 $4.70
======= ======= =======
Exercisable at end of year.............. 173,833 -- 175,416 $3.64 220,706 $4.13
Weighted-average fair value of options
granted during the year............... -- $ 1.97 $ 2.11
</TABLE>
Exercise prices for options outstanding as of June 30, 1997 ranged from
$0.38 to $6.72. The weighted average remaining contractual life of the options
is 6 years. Below are the segregated ranges of exercise prices as of June 30,
1997:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
----------------------------------------
<S> <C> <C> <C>
$0.38-0.72 $2.16-3.60 $4.80-6.72
---------- ---------- ----------
Options outstanding.................................. 20,313 49,876 260,192
Weighted-average exercise price of options
outstanding........................................ $ 0.58 $ 2.83 $ 5.38
Weighted-average remaining contractual life of
options outstanding................................ 2 years 4 years 7 years
Options exercisable.................................. 20,313 49,876 150,517
Weighted-average exercise price of options
exercisable........................................ $ 0.58 $ 2.83 $ 4.99
</TABLE>
The Company has issued three warrants which entitle the holders thereof to
acquire common shares of the Company. In March 1997, the Company issued a
warrant to Elan to acquire up to 140,166 shares for an exercise price of $21.60
per share. In December 1996, the Company issued a warrant to the Alliance of
Children's Hospitals, Inc. to acquire up to 44,791 shares for an exercise price
of $8.88 per share. In June 1995, the Company issued a warrant to the Silicon
Valley Bank to acquire up to 2,083 shares for an exercise price of $4.80 per
share. The warrants expire in April 2002, December 2003 and June 2002,
respectively.
15. SUBSEQUENT EVENTS
Initial Public Offering
On October 3, 1997, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission pursuant to which the Company
intends to consummate an initial public offering of newly issued common shares.
Reverse Stock Split
On November 7, 1997, pursuant to a vote of the shareholders, the Company
effected a one for 4.8 reverse share split for each common and preferred share
then outstanding and amended and restated its Articles of Incorporation and
Corporate Bylaws. Among other things, these amendments changed the par value of
the Company's common shares from $0.001 per share to no par value common shares;
increased the number of authorized common shares from 40,000,000 shares to
100,000,000 shares; and increased the number of
F-15
<PAGE> 87
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
authorized preferred shares from 4,215,618 shares to 10,000,000 shares. For
comparative purposes, all share amounts in the accompanying financial statements
and related footnotes have been retroactively restated to reflect the effects of
the reverse stock split and the increases in the authorized shares of the
Company's common and preferred shares.
Novartis Exchange Agreement
Effective November 1, 1997, the Company entered into an Exchange Agreement
with Novartis Pharmaceuticals Corporation. Among other things, the Exchange
Agreement provided for the exchange of Novartis' 20% minority interest in
Dermion, the Company's research and development subsidiary, for 238,541 common
shares of the Company and warrants to purchase, under certain conditions,
through November 1, 2002 an additional 18,750 common shares at a price equal to
$21.60 per share, making Dermion a wholly owned subsidiary of Iomed, Inc. In
addition, the Company and Novartis amended their research and development
agreement to, among other things, expand Iomed's rights to conduct research and
development in areas other than in the areas of acute local inflamation and
local dermal anesthesia.
F-16
<PAGE> 88
IOMED, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
F-17
<PAGE> 89
IOMED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER
30,
JUNE 30, 1997
1997 ------------
------------ (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 6,346,000 $ 5,910,000
Accounts receivable........................................... 1,189,000 1,291,000
Inventories................................................... 714,000 719,000
Prepaid expenses.............................................. 12,000 15,000
------------ ------------
Total current assets.................................. 8,261,000 7,935,000
Equipment and furniture, net.................................... 385,000 388,000
Other assets.................................................... 18,000 146,000
------------ ------------
Total Assets.......................................... $ 8,664,000 $ 8,469,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable........................................ $ 171,000 $ 214,000
Accrued liabilities........................................... 944,000 626,000
Current portion of long-term obligations...................... 2,000 -
------------ ------------
Total current liabilities............................. 1,117,000 840,000
Commitments
Minority interest............................................... 898,000 909,000
Redeemable, convertible preferred shares........................ 900,000 720,000
Subordinated, convertible debt.................................. 15,240,000 15,527,000
Shareholders' equity (deficit):
Common shares................................................. 12,047,000 12,047,000
Accumulated deficit........................................... (21,538,000) (21,574,000)
------------ ------------
Total shareholders' equity (deficit).................. (9,491,000) (9,527,000)
------------ ------------
Total liabilities and shareholders' equity
(deficit)........................................... $ 8,664,000 $ 8,469,000
============ ============
</TABLE>
See accompanying notes.
F-18
<PAGE> 90
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Product sales...................................................... $1,813,000 $1,997,000
Contract research revenue, royalties and license fees.............. 649,000 503,000
---------- ----------
Total revenues............................................. 2,462,000 2,500,000
Operating costs and expenses:
Cost of products sold.............................................. 821,000 893,000
Research and development........................................... 391,000 375,000
Selling, general and administrative................................ 769,000 1,061,000
---------- ----------
Total costs and expenses................................... 1,981,000 2,329,000
---------- ----------
Income from operations............................................... 481,000 171,000
Interest expense..................................................... 1,000 287,000
Interest income and other, net....................................... 58,000 91,000
---------- ----------
Income (loss) from continuing operations before income taxes and
minority interest.................................................. 538,000 (25,000)
Minority interest.................................................... 44,000 11,000
Income tax expense................................................... 20,000 --
---------- ----------
Income (loss) from continuing operations............................. 474,000 (36,000)
Loss from discontinued operations, net of income taxes............... (7,000) --
---------- ----------
Net income (loss).................................................... $ 467,000 $ (36,000)
========== ==========
Income (loss) per common share amounts:
Income (loss) from continuing operations............................. $ 0.14 $ (0.01)
---------- ----------
Income (loss) from discontinued operations........................... -- --
---------- ----------
Net income (loss).................................................... $ 0.14 $ (0.01)
---------- ----------
Shares used in computing per share amounts........................... 3,281,712 3,149,522
========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE> 91
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 467,000 $ (36,000)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization..................................... 88,000 57,000
Interest expense.................................................. -- 287,000
Minority interest losses and other non-cash charges............... 44,000 11,000
Changes in assets and liabilities:
Accounts receivable............................................ 315,000 (102,000)
Inventories.................................................... (218,000) (5,000)
Prepaid expenses and other assets.............................. 2,000 (131,000)
Trade accounts payable......................................... 149,000 43,000
Other current liabilities...................................... (18,000) (318,000)
---------- ----------
Net cash provided by (used in) operating activities................. 829,000 (194,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furniture................................ (46,000) (60,000)
---------- ----------
Net cash provided by (used in) investing activities................. (46,000) (60,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares............................. 4,000 --
Payments on term loans.............................................. (11,000) (2,000)
Redemptions of redeemable preferred shares.......................... (70,000) (180,000)
---------- ----------
Net cash provided by (used in) financing activities................. (77,000) (182,000)
---------- ----------
Net increase (decrease) in cash and cash equivalents................ 706,000 (436,000)
Cash and cash equivalents at beginning of period.................... 4,507,000 6,346,000
---------- ----------
Cash and cash equivalents at end of period.......................... $5,213,000 $5,910,000
========== ==========
</TABLE>
See accompanying notes.
F-20
<PAGE> 92
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
IOMED, Inc., a Utah Corporation (the "Company"), develops, manufactures and
commercializes controllable drug delivery systems using proprietary
iontophoretic technology. Iontophoresis is a method of enhancing and controlling
the transport of drugs through the skin utilizing a low level electrical
current.
Discontinued Operations
On December 31, 1996, the Company sold the assets of its Motion Control
Division, which was engaged in the research, development, manufacture and sale
of advanced myoelectric prosthetic devices. Accordingly, the consolidated
statement of operations for the three months ended September 30, 1996 presents
the results of operations of the Motion Control Division as a discontinued
operation. There were no remaining assets or liabilities related to discontinued
operations reflected in the financial statements as of September 30, 1997 or
June 30, 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its 80% owned subsidiary Dermion, Inc. ("Dermion.") Dermion was formed in
April 1996 to conduct advanced research and development of iontophoretic systems
on its own behalf and on behalf of third party clients. All significant
intercompany transactions and accounts have been eliminated.
Basis of Presentation
In the opinion of management, the accompanying condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of the Company as of September 30, 1997
and the results of its operations and cash flows for the three month periods
ended September 30, 1997 and 1996. The operating results for the interim periods
are not necessarily indicative of the results for a full year. These statements
should be read in conjunction with the Company's audited consolidated financial
statements for the year ended June 30, 1997, included elsewhere in this
prospectus.
Earnings (Loss) Per Share
The Company's net income (loss) per share is based upon the weighted
average number of common shares outstanding during the periods. Common stock
equivalents (stock options, warrants, convertible preferred stock and
convertible debt), as determined using the treasury stock method, have been
included in such computations for the three month period ended September 30,
1996 and, except as noted below, have been excluded from the computations in the
three month period ended September 30, 1997 where their inclusion would have an
antidilutive effect.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, shares and equivalent shares issued by the Company at prices
below the assumed public offering price during the twelve-month period
immediately prior to the proposed public offering have been included in the
calculation of earnings per share (using the treasury stock method and using the
midpoint of the initial public offering range), as if they had been outstanding
for all periods presented, including periods in which such securities have an
antidilutive effect. Additional SAB No. 83 shares included in the computation of
per share amounts were 15,130 and 52,332 for the three month periods ended
September 30, 1997 and 1996, respectively.
F-21
<PAGE> 93
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories consisted of the following at
September 30, 1997 and June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
--------- --------------
<S> <C> <C>
Raw materials....................................... $ 568,000 $557,000
Work-in-progress.................................... 31,000 22,000
Finished goods...................................... 115,000 140,000
-------- --------
$ 714,000 $719,000
======== ========
</TABLE>
3. DISCONTINUED OPERATIONS
In December 1996, the Company sold the assets of its Motion Control
Division which was engaged in the research, development, manufacture and sale of
myoelectric prosthetic devices. In addition, the Company granted a worldwide,
exclusive license to certain patent rights covering the products manufactured by
the division to the purchaser. Proceeds from the sale were $1,000,000 and the
Company is entitled to receive royalties on future product sales of the
purchaser. There was no significant gain or loss recognized on the sale. The
results of operations of the Motion Control Division prior to its sale have been
classified as discontinued operations in the accompanying statements of
operations. No interest expense has been allocated to discontinued operations
and both federal and state income taxes have been calculated and allocated based
upon statutory rates. A summary of the results of discontinued operations is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Net product sales......................................... $391,000
Income tax expense (benefit).............................. $ (4,000)
Income (loss) from discontinued operations................ $ (7,000)
</TABLE>
4. SUBSEQUENT EVENTS
Initial Public Offering
On October 3, 1997, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission pursuant to which the Company
intends to consummate an initial public offering of newly issued common shares.
Reverse Stock Split
On November 7, 1997, pursuant to a vote of the shareholders, the Company
effected a one for 4.8 reverse share split for each common and preferred share
then outstanding and amended and restated its Articles of Incorporation and
Corporate Bylaws. Among other things, these amendments changed the par value of
the Company's common shares from $0.001 per share to no par value common shares;
increased the number of authorized common shares from 40,000,000 shares to
100,000,000 shares; and increased the number of authorized preferred shares from
4,215,618 shares to 10,000,000 shares. For comparative purposes, all share
amounts in the accompanying financial statements and related footnotes have been
retroactively restated to reflect the effects of the reverse stock split and the
increases in the authorized shares of the Company's common and preferred shares.
F-22
<PAGE> 94
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Novartis Exchange Agreement
Effective November 1, 1997, the Company entered into an Exchange Agreement
with Novartis Pharmaceuticals Corporation. Among other things, the Exchange
Agreement provided for the exchange of Novartis' 20% minority interest in
Dermion, the Company's research and development subsidiary, for 238,541 common
shares of the Company and warrants to purchase, under certain conditions,
through November 1, 2002, an additional 18,750 common shares at a price equal to
$21.60 per share, making Dermion a wholly owned subsidiary of Iomed, Inc. In
addition, the Company and Novartis amended their research and development
agreement to, among other things, expand Iomed's rights to conduct research and
development in areas other than in the areas of acute local inflamation and
local dermal anesthesia.
F-23
<PAGE> 95
[INSIDE BACK COVER]
[GRAPHICS DEPICTING THE COMPANY'S PRODUCTS]
<PAGE> 96
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON IS AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON SHARES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Transactions Related to the Offering... 21
Use of Proceeds........................ 22
Capitalization......................... 23
Dividend Policy........................ 23
Dilution............................... 24
Selected Consolidated Financial Data... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 31
Management............................. 54
Certain Transactions................... 61
Principal Shareholders................. 62
Description of Capital Shares.......... 63
Shares Eligible for Future Sale........ 67
Underwriting........................... 68
Legal Matters.......................... 69
Experts................................ 69
Additional Information................. 70
Index to Financial Statements.......... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
PROSPECTUS , 1997
- ------------------------------------------------------
1,700,000 COMMON SHARES
LOGO
------------------------------
EVEREN SECURITIES, INC.
HANIFEN, IMHOFF INC.
WEDBUSH MORGAN SECURITIES
- ------------------------------------------------------
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Shares being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 8,712
NASD Filing Fee................................................... 3,375
National Market Listing Fee....................................... 33,000
Printing and Engraving Expenses................................... 200,000
Legal Fees and Expenses........................................... 250,000
Accounting Fees and Expenses...................................... 125,000
Blue Sky Qualification Fees and Expenses.......................... 15,000
Transfer Agent and Registrar Fees and Expenses.................... 5,000
Other Non-Accountable Underwriting Expense........................ 245,000
Miscellaneous..................................................... 31,913
--------
Total................................................... $917,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation limit the personal liability of
directors and officers for monetary damages to the maximum extent permitted by
Utah law. Under Utah law, such limitations include monetary damages for any
action taken or failed to be taken as an officer or director except for (i)
amounts representing a financial benefit to which the person is not entitled,
(ii) liability for intentional infliction of harm on the Corporation or its
shareholders, (iii) unlawful distributions, or (iv) an intentional violation of
criminal law. The Articles of Incorporation also provide that the Company will
indemnify its directors and officers against any damages arising from their
actions as agents of the Company, and that the Company may similarly indemnify
its other employees and agents. The Company is also empowered under its Articles
of Incorporation to enter into indemnification agreements with its directors and
officers.
The Company's Bylaws provide that, to the full extent permitted by the
Company's Articles of Incorporation and the Utah Revised Business Corporation
Act, the Company will indemnify (and advance expenses to) the Company's
officers, directors and employees in connection with any action, suit or
proceeding (civil or criminal) to which those persons are made party by reason
of their being a director, officer or employee). Any such indemnification will
be in addition to the advancement of expenses.
The terms of the Company's Stock Option Plan provide that, to the fullest
extent permitted by the Company's Articles of Incorporation and Bylaws and by
Utah law, no member of the committee which administers the plan will be liable
for any action or omission taken with respect to the plan or any options issued
thereunder. The Plan also provides that no member of the Board of Directors will
be liable for any action or determination made in good faith with respect to the
Plan or any option granted thereunder.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
II-1
<PAGE> 98
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has entered into five transactions in the past three years
involving the issuance of its securities under certain transactional exemptions
of the Securities Act of 1933.
On February 20, 1996, the Company issued to Laboratoires Fournier 337,837
Common Shares in conversion and satisfaction of a non-interest bearing
$3,000,000 promissory note sold to Laboratoires Fournier in 1993. On November
29, 1996, the Company issued 37,202 Common Shares to CHIC, an affiliate of CHCA,
for a total purchase price of $250,000. In connection with that transaction, on
December 1, 1996, the Company also issued to ACH, a subsidiary of CHCA, a
warrant to acquire up to 44,791 Common Shares at an exercise price of $8.88 per
share. In March 1997, the Company issued two promissory notes (one for $10.0
million and the other for $5.0 million) to Elan and delivered to Elan a warrant
to purchase 104,166 Common Shares in connection with the purchase of certain
technology from Elan. Effective November 1, 1997, the Company issued Novartis
238,541 Common Shares and warrants to acquire 18,750 Common Shares in connection
with the exchange by Novartis of its 20% equity interest in Dermion for an
equity position in the Company pursuant to the provisions of the 1997
Amendments.
In connection with each of these isolated issuances of the Company's
securities, each purchaser of those securities represented and warranted to the
Company that it (i) was aware that the securities had not been registered under
federal securities laws, (ii) acquired the securities for its own account for
investment purposes and not with a view to or for resale in connection with any
distribution for purposes of the federal securities laws, (iii) understood that
the securities would need to be indefinitely held unless registered or an
exemption from registration applied to a proposed disposition, (iv) was aware
that the certificate representing the securities would bear a legend restricting
their transfer, and (v) was aware that there was no public market for the
securities. The Company believes that, in light of the foregoing, and in light
of the sophisticated nature of each of the acquirers, the sale of the Company's
securities to the respective acquirers did not constitute the sale of an
unregistered security in violation of the federal securities laws and
regulations by reason of the exemption provided under sec. 4(2) of the
Securities Act, and the rules and regulations promulgated thereunder.
Concurrently with the closing of the Offering, Elan will acquire, directly
from the Company in private placement transactions, approximately 833,333 Common
Shares (subject to adjustment as described below) for approximately $10.2
million (the amount outstanding under the $10.0 million note) and approximately
$5.1 million of Common Shares at a price per share equal to the initial public
offering price hereunder. Simultaneously with such purchase, the Company will
repay the Elan Notes, including interest thereon. If the initial public offering
price hereunder is less than $12.00 per share, the number of Common Shares that
Elan will have the right to purchase for approximately $10.2 million (the amount
outstanding under the $10.0 million note) will be equal to approximately $10.2
million divided by the initial public offering price hereunder. Elan has
represented in the Elan agreements that it is aware that those Common Shares
will not be registered under federal securities laws, will acquire those Common
Shares for its own account and for investment purposes, understands that the
Common Shares will need to be held indefinitely unless registered or an
exemption from registration applies to any proposed disposition, and that the
certificates representing the shares will bear a restrictive legend. In light of
the foregoing, the Company believes that the acquisition of the approximately
833,333 Common Shares (subject to adjustment under certain circumstances) and
the approximately $5.1 million of Common Shares at a price per share equal to
the initial public offering price hereunder in private placement transactions
will not constitute the sale of an unregistered security in violation of federal
securities law by reason of the exemption provided under sec. 4(2) of the
Securities Act.
II-2
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ----------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement
1.2** Form of Representatives' Warrant Agreement between the Company and the
Representatives
3.1** Amended and Restated Articles of Incorporation of the Company
3.2** Amended and Restated Bylaws of the Company
4.1** Reference is made to Exhibit 3.1
4.2** Specimen of Common Share Certificate
5.1* Opinion of Parsons Behle & Latimer
10.1** Lease between the Company and Hayter Properties, Inc., dated September 1,
1997
10.2**** License Agreement between the Company and Elan International Services, Ltd.,
dated April 14, 1997
10.3**** License Agreement between the Company and Drug Delivery Systems, Inc., dated
April 14, 1997
10.4** Promissory Note issued by the Company to Elan International Management,
Ltd., in the principal amount of $10,000,000, dated April 14, 1997
10.5** Promissory Note issued by the Company to Elan International Management,
Ltd., in the principal amount of $5,000,000, dated April 14, 1997
10.6*** Note Purchase and Warrant Agreement among the Company, Elan International
Services, Ltd. And Elan International Management, Ltd. dated April 14, 1997
10.7** Warrant issued to Elan International Services, Ltd., dated April 14, 1997
10.8** Registration Rights Agreement between the Company and Elan International
Services, Ltd., dated April 14, 1997
10.9*** Asset Acquisition Agreement between the Company and Fillauer, Inc., dated
December 27, 1996
10.10**** License Agreement between the Company and Fillauer, Inc., dated December 26,
1996.
10.11** Warrant issued to Alliance of Children's Hospitals, Inc., dated December 1,
1996
10.12** Stock Purchase Agreement between the Company and Child Health Investment
Corporation, dated November 29, 1996
10.13*** Manufacturing Agreement between the Company and KWM Electronics Corporation,
dated November 1, 1996
10.14*** Contribution Agreement between the Company and Dermion, Inc., dated March
29, 1996
10.15*** Patent License Agreement between the Company and Dermion, Inc., dated March
29, 1996
10.16*** Research and Development Agreement among the Company, Dermion, Inc. and
Ciba-Geigy Corporation, dated March 29, 1996
10.17*** Stock Purchase Agreement among the Company, Dermion, Inc. and Ciba-Geigy
Corporation, dated March 29, 1996
10.18** Stockholders' Agreement among the Company, Dermion, Inc. and Ciba-Geigy
Corporation, dated March 29, 1996
10.19*** Agreement between the Company and Laboratoires Fournier S.C.A., dated
February 20, 1996
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ----------------------------------------------------------------------------
<S> <C>
10.20*** Agreement between the Company and ALZA Corporation, dated July 28, 1993
10.21*** Supply Agreement between the Company and Abbot Laboratories, Inc., dated
April 27, 1993
10.22** Stock Purchase Agreement between the Company and The CIT Group/Venture
Capital, Inc., dated March 8, 1993
10.23** Stock Purchase Agreement between the Company and certain investors, dated
February 19, 1993
10.24*** License Agreement between the Company and the University of Utah Research
Foundation, dated October 1, 1992
10.25** Warrant issued to Silicon Valley Bank, dated June 25, 1992
10.26** Company 1997 Share Incentive Plan
10.27*** Preferred Stock Purchase Agreement between the Company, Newtek Ventures, MBW
Venture Partners, Michigan Investment Fund, Utah Ventures, Cordis
Corporation, Ian R.N. Bund, James R. Weersing and Robert J. Harrington,
dated August 4, 1987
10.28** Exchange Agreement among the Company, Novartis Pharmaceuticals Corporation
and Dermion, Inc., dated November 1, 1997
10.29** Warrant to Purchase Shares of Common Stock in favor of Novartis
Pharmaceuticals Corporation, dated November 1, 1997
10.30** First Amendment of Research & Development Agreement among the Company,
Novartis Pharmaceuticals Corporation and Dermion, Inc. dated November 1,
1997.
10.31*** Supply Agreement between the Company and Luitpold Pharmaceuticals,
Inc./American Regent Laboratories, Inc. dated December 4, 1994
11.1** Statement re computation of earnings per share
21.1** Schedule of Subsidiaries
23.1** Consent of Parsons Behle & Latimer
23.2* Consent of Ernst & Young LLP
23.3** Consent of Workman Nydeggar & Seeley
24.1** Power of Attorney (see signature page)
27.1** Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** Confidential portions omitted and previously filed separately with the
Commission.
**** Confidential portions omitted and filed herewith
(B) FINANCIAL STATEMENT SCHEDULES
All required financial statement schedules are included as part of the
Consolidated Financial Statements.
II-4
<PAGE> 101
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah on the
18th day of December, 1997.
IOMED, Inc.
/s/ NED M. WEINSHENKER
--------------------------------------
By: Ned M. Weinshenker, Ph.D.
Its: Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ned M. Weinshenker, and Robert J.
Lollini, and each of them, his attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him in any and all capacities, to
sign any and all amendments (including posteffective amendments) to this
Registration Statement, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully as to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------ ----------------
<S> <C> <C>
/s/ NED M. WEINSHENKER President, Chief October 3, 1997
- ----------------------------------------------- Executive Officer and
Ned M. Weinshenker Director (Principal
Executive Officer)
/s/ ROBERT J. LOLLINI Vice President and Chief October 3, 1997
- ----------------------------------------------- Financial Officer
Robert J. Lollini (Principal Financial and
Accounting Officer)
/s/ JAMES R. WEERSING Chairman of the Board of October 3, 1997
- ----------------------------------------------- Directors
James R. Weersing
/s/ JOHN W. FARA Director October 3, 1997
- -----------------------------------------------
John W. Fara, Ph.D.
/s/ PETER J. WARDLE Director October 3, 1997
- -----------------------------------------------
Peter J. Wardle
/s/ STEVEN P. SIDWELL Director October 3, 1997
- -----------------------------------------------
Steven P. Sidwell
/s/ WARREN WOOD Director October 3, 1997
- -----------------------------------------------
Warren Wood
Director October 3, 1997
- -----------------------------------------------
Michael T. Sember
</TABLE>
II-6
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <S> <C>
1.1** Form of Underwriting Agreement....................................
1.2** Form of Representatives' Warrant Agreement between the Company and
the Representatives...............................................
3.1** Amended and Restated Articles of Incorporation of the Company.....
3.2** Amended and Restated Bylaws of the Company........................
4.1** Reference is made to Exhibit 3.1..................................
4.2** Specimen of Common Share Certificate..............................
5.1* Opinion of Parsons Behle & Latimer................................
10.1** Lease between the Company and Hayter Properties, Inc., dated
September 1, 1997.................................................
10.2**** License Agreement between the Company and Elan International
Services, Ltd., dated April 14, 1997..............................
10.3**** License Agreement between the Company and Drug Delivery Systems,
Inc., dated April 14, 1997........................................
10.4** Promissory Note issued by the Company to Elan International
Management, Ltd., in the principal amount of $10,000,000, dated
April 14, 1997....................................................
10.5** Promissory Note issued by the Company to Elan International
Management, Ltd., in the principal amount of $5,000,000, dated
April 14, 1997....................................................
10.6*** Note Purchase and Warrant Agreement among the Company, Elan
International Services, Ltd. And Elan International Management,
Ltd. dated April 14, 1997.........................................
10.7** Warrant issued to Elan International Services, Ltd., dated April
14, 1997..........................................................
10.8** Registration Rights Agreement between the Company and Elan
International Services, Ltd., dated April 14, 1997................
10.9*** Asset Acquisition Agreement between the Company and Fillauer,
Inc., dated December 27, 1996.....................................
10.10**** License Agreement between the Company and Fillauer, Inc., dated
December 26, 1996.................................................
10.11** Warrant issued to Alliance of Children's Hospitals, Inc., dated
December 1, 1996..................................................
10.12** Stock Purchase Agreement between the Company and Child Health
Investment Corporation, dated November 29, 1996...................
10.13*** Manufacturing Agreement between the Company and KWM Electronics
Corporation, dated November 1, 1996...............................
10.14*** Contribution Agreement between the Company and Dermion, Inc.,
dated March 29, 1996..............................................
10.15*** Patent License Agreement between the Company and Dermion, Inc.,
dated March 29, 1996..............................................
10.16*** Research and Development Agreement among the Company, Dermion,
Inc. and Ciba-Geigy Corporation, dated March 29, 1996.............
10.17*** Stock Purchase Agreement among the Company, Dermion, Inc. and
Ciba-Geigy Corporation, dated March 29, 1996......................
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <S> <C>
10.18** Stockholders' Agreement among the Company, Dermion, Inc. and Ciba-
Geigy Corporation, dated March 29, 1996...........................
10.19*** Agreement between the Company and Laboratoires Fournier S.C.A.,
dated February 20, 1996...........................................
10.20*** Agreement between the Company and ALZA Corporation, dated July 28,
1993..............................................................
10.21*** Supply Agreement between the Company and Abbot Laboratories, Inc.,
dated April 27, 1993..............................................
10.22** Stock Purchase Agreement between the Company and The CIT
Group/Venture Capital, Inc., dated March 8, 1993..................
10.23** Stock Purchase Agreement between the Company and certain
investors, dated February 19, 1993................................
10.24*** License Agreement between the Company and the University of Utah
Research Foundation, dated October 1, 1992........................
10.25** Warrant issued to Silicon Valley Bank, dated June 25, 1992........
10.26** Company 1997 Share Incentive Plan.................................
10.27*** Preferred Stock Purchase Agreement between the Company, Newtek
Ventures, MBW Venture Partners, Michigan Investment Fund, Utah
Ventures, Cordis Corporation, Ian R.N. Bund, Jamers R. Weersing
and Robert J. Harrington, dated August 4, 1987....................
10.28** Exchange Agreement among the Company, Novartis Pharmaceuticals
Corporation and Dermion, Inc., dated November 1, 1997.............
10.29** Warrant to Purchase Shares of Common Stock in favor of Novartis
Pharmaceuticals Corporation, dated November 1, 1997...............
10.30** First Amendment of Research & Development Agreement among the
Company, Novartis Pharmaceuticals Corporation and Dermion, Inc.
dated November 1, 1997.
10.31*** Supply Agreement between the Company and Luitpold Pharmaceuticals,
Inc./American Regent Laboratories, Inc. dated December 4, 1994.
11.1** Statement re computation of earnings per share....................
21.1** Schedule of Subsidiaries..........................................
23.1** Consent of Parsons Behle & Latimer................................
23.2* Consent of Ernst & Young LLP......................................
23.3** Consent of Workman Nydeggar & Seeley..............................
24.1** Power of Attorney (see signature page)............................
27.1** Financial Data Schedule...........................................
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** Confidential portions omitted and previously filed separately with the
Commission
**** Confidential portions omitted and filed herewith
<PAGE> 1
EXHIBIT 5.1
December 17, 1997
IOMED, Inc.
3383 West 1820 South
Salt Lake City, Utah 84104
RE: IOMED, INC.
REGISTRATION STATEMENT ON FORM S-1
(REGISTRATION NO. 333-37159)
Gentlemen:
We are acting as counsel to IOMED, Inc., a Utah corporation (the
"Company"), in connection with the preparation of the above-referenced
Registration Statement on Form S-1 (the "Registration Statement"), filed by the
Company with the Securities and Exchange Commission (the "Commission") on
October 3, 1997. The Registration Statement relates to the registration under
the Securities Act of 1933, as amended (the "Act"), of up to 1,700,000 common
shares (the "Shares") of no par value, to be issued and sold pursuant to an
underwriting agreement to be entered into among the Company and EVEREN
Securities, Inc., Hanifen, Imhoff Inc. and Wedbush Morgan Securities, on behalf
of themselves and the several other underwriters to be named in Schedule I
thereto (the "Underwriting Agreement"). Capitalization terms used herein and not
otherwise defined have the meanings given to them in the Registration Statement.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K promulgated under the Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Amended and Restated Articles of Incorporation of the Company; (ii)
the By-laws of the Company as amended to date;
<PAGE> 2
December 17, 1997
Page Two
(iii) certain resolutions and written consents of the Board of Directors of the
Company relating to the offering of the Shares; (iv) the Registration
Statement, and (v) such other documents as we have deemed necessary or
appropriate as the basis for the opinions set forth below. In such examination,
we have assumed the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such latter documents. As to any facts material to this opinion which we did
not independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the practice of law in the State of
Utah, and we express no opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective, (ii) the Underwriting
Agreement is duly executed and delivered by the Company and the other parties
thereto and (iii) certificates representing the Shares are duly executed,
countersigned, registered and duly delivered upon payment of the agreed upon
consideration therefor, the Shares will be duly authorized, validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
Parsons Behle & Latimer
<PAGE> 1
EXHIBIT 10.2
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION
This Agreement is made the 14th day of April 1997
BY AND BETWEEN
ELAN CORPORATION plc
An Irish company, of Monksland, Athlone, Co. Westmeath, Ireland
AND
IOMED, Inc.
A Corporation organized and existing under the laws of the State of Utah,
having an office at 3385 West 1820 South, Salt Lake City, UT 84104, United
States of America.
<PAGE> 2
WHEREAS
- -- ELAN is beneficially entitled to the use of various patents, including the
ELAN IONTOPHORETIC PATENT RIGHTS, which have been granted or are pending
under the International Convention in relation to the development and
production of iontophoretic transdermal devices and drug specific dosage
forms for pharmaceutical devices, products and processes, and
- -- ELAN is knowledgeable in the development of iontophoretic transdermal
devices and drug specific dosage forms and has developed a unique range
of device and delivery systems designed to provide improved devices and
formulations of medicaments, and
- -- IOMED is desirous of entering into a licensing agreement with ELAN to,
further develop, manufacture and have manufactured in accordance with the
terms of this Agreement and to market, sell and distribute the PRODUCTS
in the TERRITORY without infringing any of the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY rights held by ELAN, and
- -- ELAN is prepared to license the ELAN IONTOPHORETIC PATENT RIGHTS in the
TERRITORY to IOMED.
NOW IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I: DEFINITIONS
1.1. In the present Agreement and any further agreements based thereon between
the Parties hereto, the following definitions shall prevail:
1. ADDITIONAL TERM shall have the meaning set forth in Article VIII,
Paragraph 2.
2. AFFILIATE shall mean any corporation or entity controlling,
controlled by or under the common control of ELAN or IOMED as the
case may be. For the purpose of this paragraph, "control" shall
mean the direct or indirect ownership of at least fifty percent
(50%) of the outstanding shares or other voting rights of the
subject entity to elect directors, or if not meeting the preceding
criteria, any entity owned or controlled by or owning or controlling
at the maximum control or ownership right permitted in the country
where such entity exists.
<PAGE> 3
3. Agreement shall mean this agreement.
4. ****
5. ****
6. ****
7. ASSETS shall mean those items of tangible property being transferred
by ELAN to IOMED the details of which are set out in Appendix A.
8. cGCP, cGLP and cGMP shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing
Practices respectively.
9. CONFIDENTIAL INFORMATION shall mean information, material or data
relating to the FIELD not generally known to the public,
CONFIDENTIAL INFORMATION in tangible form disclosed hereunder shall
be marked as "Confidential" at the time it is delivered to the
receiving Party. CONFIDENTIAL INFORMATION disclosed orally shall be
identified as confidential or proprietary when disclosed and such
disclosure of CONFIDENTIAL INFORMATION shall be confirmed in writing
within thirty (30) days by the disclosing Party.
10. DDS shall mean Drug Delivery Systems, Inc.
11. DDS AGREEMENT shall mean the license agreement entered into between
IOMED and DDS on the EFFECTIVE DATE.
12. DDS IONTOPHORETIC PATENT RIGHTS shall have the meaning as defined in
Article I of the agreement being entered into by IOMED and Drug
Delivery Systems, Inc. on the EFFECTIVE DATE.
13. EFFECTIVE DATE shall mean the 14th day of April 1997.
14. ELAN shall mean Elan Corporation plc and any of its AFFILIATES.
<PAGE> 4
15. ELAN EXCLUDED TECHNOLOGY shall mean all intellectual property
including, without limitation any inventions, discoveries, material
and data whether or not protectable by patents, trade secrets,
trademark or copyright in relation *****.
16. ELAN IONTOPHORETIC INTELLECTUAL PROPERTY shall mean the ELAN
IONTOPHORETIC PATENT RIGHTS and/or the ELAN IONTOPHORETIC KNOW-HOW.
17 ELAN IONTOPHORETIC KOW-HOW shall mean all scientific or-technical
knowledge, information or expertise developed, produced, created or
acquired by or on behalf of ELAN which is not generally known to the
public, or to be developed by ELAN during the term of this
Agreement, relating to the FIELD, whether or not covered by any
patent, copyright, design, trademark or other industrial or
intellectual property rights as further set forth in Appendix B.
For the avoidance of doubt ELAN IONTOPHORETIC KNOW-HOW shall exclude
the ELAN EXCLUDED TECHNOLOGY.
18. ELAN IONTOPHORETIC PATENT RIGHTS shall mean all granted patents and
pending patent applications owned by, or licensed by ELAN, the
current status of which is set forth in Appendix C. ELAN
IONTOPHORETIC PATENT RIGHTS shall also include all continuations,
continuations-in-part, divisionals, re-issues and re-examinations of
such patents and patent applications and any patents issuing thereon
and extensions of any patents licensed hereunder and all foreign
counterparts thereto. ELAN IONTOPHORETIC PATENT RIGHTS shall
further include any patents or Patent applications covering any
improved PRODUCTS or methods of making or using the PRODUCTS
invented by ELAN during the term of this Agreement pursuant to such
research and development if any conducted by ELAN pursuant to
Article III Paragraph 1.
19. EX WORKS shall have the meaning as such term is defined in the ICC
Incoterms, 1990, International Rules for the Interpretation of Trade
Terms, ICC Publication No. 460.
20. FDA shall mean the United States Food and Drug Administration or any
other successor agency, whose approval is necessary to market the
PRODUCTS in the United States of America and its foreign equivalents
in such other countries of the TERRITORY where IOMED intends to
obtain regulatory approval.
<PAGE> 5
21. FIELD shall mean ****.
22. IOMED shall mean IOMED, Inc. and any of its AFFILIATES, including
DERMION Inc.
22. IOMED KNOW-HOW shall mean all scientific or technical knowledge,
information or expertise developed, produced, created or acquired by
or on behalf of IOMED which is not generally known to the public, or
developed by or on behalf of IOMED during the term of this
Agreement, relating to the PRODUCTS, excluding ELAN IONTOPHORETIC
KNOW-HOW, whether or not covered by any patent, copyright, design,
trademark or other industrial or intellectual property rights.
23. IOMED PATENT RIGHTS shall mean all granted patents and pending
patent applications owned or licensed by IOMED relating to the
FIELD, excluding ELAN IONTOPHORETIC PATENT RIGHTS and DDS PATENT
RIGHTS. IOMED PATENT RIGHTS shall also include all continuations,
continuations-in-part, divisionals, re-issues and re-examinations of
such patents and patent applications and any patents issuing thereon
and extensions thereof and all foreign counterparts thereto. IOMED
PATENT RIGHTS shall further include any patents or patent
applications covering any improved methods of making or using the
PRODUCTS invented or acquired by IOMED during the term of this
Agreement.
24. IND shall mean one or more investigational new drug applications
filed by ELAN or to be filed by IOMED with the FDA.
26. NET REVENUES shall mean:
26.1. ****:
26.1.1. ****
26.1.2. ****
<PAGE> 6
26.1.3. ****
****; and
26.2. ****;
26.2.1 ****;
26.2.2. ****;
26.2.3. ****;
26.2.4. ****; and
26.2.5. ****.
****.
<PAGE> 7
****.
****.
****.
27. NDA shall mean one or more of the New Drug Applications which IOMED
shall file, including any supplements or amendments thereto and
510(k)s which IOMED may file, for the PRODUCTS with the FDA.
28. OFFERING PARTY shall mean ****.
29. Party shall mean IOMED or ELAN, as the case may be, "Parties" shall
mean IOMED and ELAN.
30. PRODUCT(S) shall mean all devices or any parts thereof developed,
manufactured or sold by or on behalf of IOMED within the FIELD,
****.
31. RESEARCH AND DEVELOPMENT COST shall mean in the case of research
and development being conducted by or on behalf of ELAN for IOMED
pursuant to Article III Paragraph 1, the fully allocated costs
thereof calculated in accordance with generally accepted Irish
accounting principles consistently applied. 32. TERM shall have the
meaning set forth in Article VIII Paragraph 1.
33. TERRITORY means all of the countries of the world.
34. $ shall mean United States Dollars.
<PAGE> 8
1.2 In this Agreement
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice versa.
1.2.2 any reference to a Article or Appendix shall unless otherwise
specified provided, be to an Article or Appendix of this Agreement.
1.2.3 the headings of this Agreement are for case reference only and shall
not affect its construction or interpretation.
ARTICLE II: THE LICENSE
1.1. ELAN shall remain proprietor of all the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY but hereby grants to IOMED for the term of the Agreement an
exclusive (including as to ELAN) license in the TERRITORY, with the right
to grant sublicenses pursuant to and in accordance with the provisions of
Article II Paragraph 2, to research develop, manufacture, have
manufactured for IOMED (or its permitted sublicenses), use, sell and
otherwise commercialize the ELAN IONTOPHORETIC INTELLECTUAL PROPERTY and
the PRODUCTS in the FIELD under the terms and conditions set out herein.
The exclusive nature of the licenses granted by ELAN are subject to
**** as set out in Appendix C. ELAN's license to IOMED shall specifically
exclude ELAN EXCLUDED TECHNOLOGY.
1.2. Subject to earlier termination of the Agreement pursuant to Article VIII,
at the end of the ADDITIONAL TERM the rights granted by ELAN to IOMED
pursuant to Paragraph 1.1 above shall be exclusive, paid-up and
irrevocable.
2.1. IOMED may sublicense rights which incorporate the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY ****, without the prior written consent of ELAN.
<PAGE> 9
2.2. Any sublicense other than permitted by paragraph 2.1. above, ****, shall
require the prior written consent of ELAN, which may be withheld in the
sole discretion of ELAN.
2.3. No sublicense granted by IOMED pursuant to Article II Paragraph 2 shall
authorize or permit the sublicense to grant further sublicenses ****.
IOMED shall use its reasonable endeavors to ensure that ELAN shall have
the same rights of audit and inspection vis a vis the sublicensee as ELAN
has pursuant to this Agreement concerning IOMED.
2.4. Insofar as the obligations owed by IOMED to ELAN are concerned, IOMED
shall remain responsible for all acts and omissions of any sublicenses as
if such acts and omissions were by IOMED; provided that no such acts or
omissions of such sublicensee will constitute a material breach by IOMED
for the purpose of Article VIII Paragraph 3. In the event that ELAN
terminates the Agreement pursuant to the provisions of Article VIII
Paragraph 3, due to the default of IOMED, then ELAN shall, with IOMED's
consent and assistance, notify each sublicensee appointed pursuant to
Article II Paragraphs 2.1. and 2.2. of its termination. If any
sublicensee elects to notify ELAN that it requires the continuation of the
licenses granted to IOMED pursuant to this Agreement, ELAN shall promptly
enter into good faith negotiations with sublicensee to establish a direct
contractual nexus between ELAN and such sublicensee. Such contractual
nexus shall, subject to ELAN's reasonable discretion, be on commercially
reasonable terms and shall to the extent practicable be on terms no less
favorable to the sublicensee than the terms of such sublicensees'
agreement with IOMED, and shall provide that the sublicensee shall take
over the applicable obligations owed by IOMED to ELAN pursuant to this
Agreement. Sales of PRODUCTS and other consideration payable to such a
sublicensee in relation to the PRODUCTS shall constitute NET REVENUES for
the purpose of calculating the sums payable by the sublicensee to ELAN.
****.
<PAGE> 10
3. It is contemplated that the physical transfer of the ELAN IONTOPHORETIC
KNOW-HOW to be licensed under this Agreement and the furnishing of copies
of relevant patent documentation regarding the ELAN IONTOPHORETIC PATENT
RIGHTS shall be completed within six months of the EFFECTIVE DATE. ELAN
shall, at its expense, provide all reasonable assistance within such
six-month period to IOMED to facilitate such transfer, provided, that in
the event that IOMED's requirements relating to such transfer are in
excess of the Parties' current reasonable, good faith, expectations, the
Parties shall negotiate in good faith reimbursement of ELAN's
out-of-pocket expenses. Any dispute under this Paragraph 3 shall be
resolved by referring such dispute to an arbitrator pursuant to the
provisions of Article IX Paragraph 14.
4. Insofar as the exercise by IOMED and its permitted sublicensees of the
ELAN IONTOPHORETIC INTELLECTUAL PROPERTY rights is concerned, and to the
extent permitted pursuant to its contractual obligations to ****, ELAN
agrees that during the TERM and the ADDITIONAL TERM ELAN shall not cite or
otherwise rely upon the patents licensed by ELAN from **** pursuant to the
**** AGREEMENT, or developed jointly by ELAN and **** pursuant to the ****
AGREEMENT, against IOMED or IOMED's sublicensees and ELAN shall use its
commercially reasonable endeavors to ensure that ELAN's sublicensees of
the **** TECHNOLOGY shall be bound in similar fashion. ELAN shall be
entitled to disclose such CONFIDENTIAL INFORMATION as ELAN considers
reasonably necessary in using such commercially reasonable endeavors to
potential sublicensees under obligations of confidentiality. As of the
date hereof (I) ELAN has no such sublicensees and (II) to the knowledge of
ELAN, there are currently no grounds to cite such patents and there are no
express provisions of the **** AGREEMENT requiring ELAN to cite such
patents,
5. IOMED shall mark or have marked the patent number an all PRODUCTS, or
otherwise reasonably communicate to the trade concerning the existence of
any ELAN IONTOPHORETIC PATENT RIGHTS for the countries within the
TERRITORY in such a manner as to ensure compliance with, and
enforceability under, applicable laws.
Performance by IOMED
6. IOMED shall use commercially reasonable efforts consistent with its
financial resources and capital constraints, to research, develop,
register, market and promote the PRODUCTS and to exploit the ELAN
IONTOPHORETIC INTELLECTUAL PROPERTY in the major markets of the TERRITORY.
<PAGE> 11
7. **** IOMED shall report on the ongoing sales performance of the PRODUCTS,
and the exploitation of the ELAN IONTOPHORETIC INTELLECTUAL PROPERTY in
the TERRITORY, ****. For the avoidance of doubt, the Parties agree that
all information furnished to ELAN pursuant to this Paragraph shall
constitute CONFIDENTIAL INFORMATION for the purposes of this Agreement.
8. ****.
9. ELAN and IOMED shall, if requested by IOMED, for a ninety (90) day period
from and after the EFFECTIVE DATE (the "Negotiation Period"), negotiate in
good faith, as described below, an exclusive world-wide sublicense to
IOMED to the rights to make, research, develop, use, promote, distribute,
market and sell the Device (as defined in the AQI AGREEMENT) pursuant to
and in accordance with the provisions of such agreement and subject to
the provisions of any product-specific sublicense agreements entered into
by ELAN, including the agreement referred to in Article II Paragraph 10.
During the Negotiation Period, the Parties shall negotiate in good faith
the terms of a sublicense. It is agreed that this paragraph creates no
legal obligation upon either Party to conclude the sublicense agreement,
but merely evidences an intention on the part of both Parties to proceed
in good faith and with proper due diligence in the negotiation and
preparation of the sublicense agreement if so requested by the IOMED.
<PAGE> 12
10. ****.
11. In consideration for the sum of ****, ELAN shall transfer title only to
the ASSETS which are relevant to the IONTOPHORETIC INTELLECTUAL PROPERTY
(but for the avoidance of doubt shall not include the time or employment
of any employees), as set forth on Appendix A hereto. ELAN shall deliver
the ASSETS EX WORKS the appropriate ELAN facilities, to IOMED, and/or any
party designated by IOMED, in proper packaging so as to permit safe
storage and transport. It is contemplated that the physical transfer of
the ASSETS shall be completed within **** of the EFFECTIVE DATE. ****.
ELAN shall not transfer title to the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY.
12. Insofar as the obligations of ELAN set out in this Agreement concerning
the **** AGREEMENT is concerned, ELAN hereby confirms that ****, a wholly
owned subsidiary and AFFILIATE of ELAN which is a contracting party to the
**** AGREEMENT, is aware of the terms of this Agreement and consents to
such obligations as ELAN is undertaking in this Agreement as relate to the
**** AGREEMENT being undertaken by ELAN on its behalf, including the
obligations set forth in Article II Paragraphs 9 and 10.
<PAGE> 13
13. IOMED hereby confirms that it intends to manufacture or procure the
manufacture of the PRODUCTS in a manner which fully complies with all
applicable statutes, ordinances and regulations of the United States of
America and other countries with respect to the manufacture of the
PRODUCTS including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder, eGLP, cGCP and cGMP.
ARTICLE III: DEVELOPMMNT OF THE PRODUCTS
1. IOMED shall be responsible for the cost of the further development,
registration, manufacture and marketing of the PRODUCTS. The Parties
shall each negotiate in good faith the extent to which ELAN shall provide
research and development services to IOMED. In the event that ELAN
provides such services, such services shall be reimbursed by IOMED ****
ARTICLE IV: FINANCIAL PROVISIONS
1. License Royalties
1. In consideration of the rights and license granted to IOMED to the ELAN
IONTOPHORETIC PATENT RIGHTS by virtue of this Agreement, IOMED shall pay
to ELAN, the sum of (****) United States Dollars (****) in cash by wire
transfer due upon execution of this Agreement and payable within two
business days of the EFFECTIVE DATE.
2. Royalty on NET REVENUES
2.1. In consideration of the license of the ELAN IONTOPHORETIC PATENT RIGHTS to
IOMED, and subject to the provisions of Article IV Paragraphs 2.2. and
2.3, the royalty payable by IOMED to ELAN shall be **** percent (****%) on
NET REVENUES generated on or after the EFFECTIVE DATE.
<PAGE> 14
2.2. In further consideration of the license of the ELAN IONTOPHORETIC PATENT
RIGHTS to IOMED, subject to the proviso in this Paragraph 2.2, ELAN shall
not be entitled to a royalty on NET REVENUES, whether generated on or
after 1st July 1997 or otherwise, (a) in connection with PRODUCTS whose
primary purpose is for inducing local anaesthesia and/or (b) in
connection with PRODUCTS for treating local acute inflammatory
conditions, whether or not such products are currently marketed, or in
development and including improvements thereto; provided that on a
country by country basis if the research, development, manufacture or
commercialisation of such PRODUCTS would infringe the ELAN IONTOPHORETIC
PATENT RIGHTS and/or the DDS IONTOPHORETIC PATENT RIGHTS (but for the
granting of the licenses by ELAN pursuant to Article II Paragraph 1.1.
and the licenses granted by DDS pursuant to the DDS AGREEMENT) the
royalty payable by IOMED to ELAN shall be three per cent (3%) of NET
REVENUES generated on or after 1st July 1997. IOMED shall not be required
to pay a royalty to ELAN of NET REVENUES on commercialisation of the
products listed in Appendix D hereto which, the Parties acknowledge, are
presently-marketed products of IOMED. In the event of any dispute
relating to the foregoing provisions of this Paragraph, the Parties shall
cause such dispute to be arbitrated before an experienced patent
attorney. In such event the procedure set forth in Article VIII Paragraph
14 shall to the extent practicable apply to the conduct of such
arbitration.
2.3. In the event that the Parties conclude a sublicense to or for the AQI
TECHNOLOGY as set out in Article II Paragraph 9,then notwithstanding any
other provisions of the terms of such sublicense to be agreed between the
Parties, including the license royalty, IOMED shall pay to Elan
International Services Limited, or such other AFFILIATE as currently
holds the applicable rights pursuant to the AQI AGREEMENT, a royalty of
seven and one half per cent (7.5%) of the NET REVENUES derived by IOMED
from the third party referred to in Article II Paragraph 10 for a term to
be agreed.
2.4. IOMED shall not discriminate in its commercialization strategy and pricing
policy as between the PRODUCTS referred to in Article IV Paragraphs 2.1.
and 2.2.
2.5. The Parties agree that when IOMED provides free samples of PRODUCT to
promote the further sale of PRODUCTS, such provision of free samples
shall not generate any royalty payments to ELAN by IOMED, its and/or
sublicensees; provided however, that such sampling is specifically
designed to promote sales of PRODUCT and is no less favorable to ELAN
than IOMED's standard sampling practice for similar products.
<PAGE> 15
Royalty Payments, Reports and Records
3.1. Within forty five (45) days of the end of each quarter, IOMED shall notify
ELAN of the NET REVENUES of each of the PRODUCTS and arising from the
exploitation of the ELAN IONTOPHORETIC INTELLECTUAL PROPERTY and/or the
IOMED PATENT RIGHTS and/or the IOMED KNOW-HOW, for that preceding quarter.
Payments shown by each calendar quarter report to have accrued shall be
due on the date such report is due. All payments due hereunder shall be
made to the designated bank account of ELAN in accordance with such timely
written instructions as ELAN shall from time to time provide.
3.2. IOMED shall keep and shall cause its AFFILIATES and sublicensees to keep
true and accurate records of sales of PRODUCTS, other transactions giving
rise to NET REVENUS, and the royalties payable to ELAN under Article IV
hereof and shall deliver to ELAN a written statement thereof within forty
five (45) days following the and of each calendar quarter (or any past
thereof in the first or last calendar quarter of this Agreement) for such
calendar quarter. Said written statements shall set forth (I) for each
PRODUCT on ****, the calculation of NET REVENUES from gross revenues
during that calendar quarter, the applicable percentage royalty rates, and
a computation of such royalties due and (II) such details of the
transactions arising from the exploitation of the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY and/or the IOMED PATENT RIGHTS and/or the IOMED
KNOW-HOW as are relevant to the calculation of NET REVENUES (the "Royalty
Statement").
3.3. AU payments due hereunder shall be made in United States Dollars.
Payments due on NET REVENUES received in a currency other than United
States Dollars shall first be calculated in the foreign currency and then
converted to United States Dollars on the basis of the average of the
exchange rates in effect for the purchase of United States Dollars with
such foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to the
currency of the country or origin of such payment for the last business
day of each month for which the payment is being made.
<PAGE> 16
3.4. ELAN shall have the right to have access, on reasonable notice, to IOMED's
or IOMED's sublicensee's financial documentation and records during
reasonable business hours for the purpose of verifying the royalties
payable as provided in this Agreement for the two preceding years. This
right may not be exercised more than once in any calendar year, and once a
calendar year is audited it may not be reaudited. For the avoidance of
doubt, the Parties agree that all information furnished to ELAN pursuant
to this Paragraph shall constitute CONFIDENTIAL INFORMATION for the
purposes of this Agreement.
Any adjustment required by such inspection shall be made within thirty
(30) days of the agreement of the Parties or, if not agreed, upon the
determination of an arbitrator to whom any dispute under this Paragraph
shall be submitted to arbitration pursuant to Article IX Paragraph 14. If
the adjustment payable to ELAN is greater than ****, then the cost to ELAN
for the inspection and if applicable the arbitration she be paid by IOMED.
In addition, IOMED shall pay interest to ELAN at **** (applicable as of
the date on which payment should have been made pursuant to Article IV
Paragraph 3.3.), from the date on which payment should have been made
pursuant to Article IV paragraph 3.3. until the date of payment.
ARTICLE V: REGISTRATION OF THE PRODUCTS
1. During the TERM and the ADDITIONAL TERM, IOMED shall be responsible for
filing and prosecuting all NDAs and other applications for regulatory
approvals. ELAN shall transfer the INDs held by it in relation to the
PRODUCTS. IOMED or its sublicensees shall file the NDAs with the FDA and
will use its reasonable efforts in prosecuting said NDA to approval.
IOMED shall thereafter maintain at its own cost the NDAs with the FDA for
the term of this Agreement. Subject to IOMED's reasonable discretion
IOMED hereby agrees to provide to ELAN at ELAN's own cost access to such
NDAs as ELAN reasonably requests. ****. For the avoidance of doubt,
the parties agree that all information furnished to ELAN pursuant to this
Paragraph shall Institute CONFIDENTIAL INFORMATION for the purposes of
this Agreement.
<PAGE> 17
2. It is hereby acknowledged that there are inherent uncertainties involved
in the development and registration of pharmaceutical products with the
FDA or any other regulatory body in the TERRITORY insofar as obtaining
approval is concerned and such uncertainties form part of the business
risk involved in undertaking the form of commercial collaboration as set
forth in this Agreement.
ARTICLE VI: REPRESENTATIONS, WARRANTIES
1. ELAN represents to IOMED the following:
1.1 ELAN is duly and validly existing in the jurisdiction of its
incorporation and each other jurisdiction in which the conduct of
its business requires such qualification, and is in compliance with
all applicable laws, rules, regulations or orders relating to its
business and assets;
1.2 ELAN has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered by ELAN and
constitutes the legal and valid obligations of ELAN and is
enforceable against ELAN in accordance with its terms and the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby and will not violate or result in a
default under or creation of lien or encumbrance under ELAN's
memorandum and articles of association or other organic documents,
any material agreement or instrument binding upon or affecting ELAN
or its properties or assets or any applicable laws, rules,
regulations or orders affecting ELAN or its properties or assets;
1.3 ELAN is not in material default of its memorandum and articles of
association or similar organic documents, any applicable material
laws or regulations or any material contract or agreement binding
upon or affecting it or its properties or assets and the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby will not result in any such violation; and
<PAGE> 18
1.4 ****.
2. IOMED represents to ELAN the following:
2.1. IOMED is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification, and
IOMED is in compliance with all applicable laws, rules, regulations
or orders relating to its business and assets;
2.2. IOMED has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered and constitutes
the legal and valid obligations of IOMED and is enforceable against
IOMED in accordance with its terms; and the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby will not violate or result in a default under or creation of
lien or encumbrance under IOMED's certificate of incorporation,
by-laws or other organic documents, any material agreement or
instrument binding upon or affecting IOMED or its properties or
assets or any applicable laws, rules, regulations or orders
affecting IOMED or its properties or assets;
<PAGE> 19
2.3. IOMED is not in default of its charter or by-laws, any applicable
laws or regulations or any material contract or agreement binding
upon or affecting it or its properties or assets and the execution,
delivery and performance of this letter agreement and the
transactions contemplated hereby will not result in any such
violation.
2.4. IOMED represents and warrants that it has not granted any option,
license, right or interest to any third party which would conflict
with the terms of this Agreement.
2.5. In the event that a claim or proceeding is brought against ELAN by a
third party alleging that the manufacture of the PRODUCTS, or the
sale, distribution or use of the PRODUCTS in the TERRITORY
infringes any adversely held patent or any other intellectual
property, ELAN shall promptly advise IOMED of such threat or suit.
IOMED shall indemnify ELAN against such a claim, provided that ELAN
shall not acknowledge to the third party or to any other person the
validity of the patent rights of such a third party and shall not
compromise or settle any claim or proceedings relating thereto
without the written consent of IOMED. At its option, IOMED may
elect to take over the conduct of such proceedings from ELAN with
counsel of IOMED's choice. In such event IOMED shall keep ELAN
advised of all material developments in the said proceedings and
shall not settle or compromise such proceedings without the consent
of ELAN which shall not be unreasonably withheld.
ARTICLE VII PATENTS
1. Title to all inventions and other ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY created or developed solely by employees of ELAN shall be owned
by ELAN. Title to all inventions and other intellectual property created
or developed solely by IOMED employees shall be owned by IOMED. Title to
all inventions and other intellectual property created or developed
jointly by employees of IOMED and ELAN pursuant to research and
development conducted by ELAN and IOMED pursuant to Article III shall be
jointly owned by ELAN and IOMED. The Parties agree that such inventions
invented after the EFFECTIVE DATE shall not result in any additional
royalties being paid by IOMED pursuant to Article IV or extend the TERM
of this Agreement.
2. The Parties agree that the following provisions of Article VII Paragraph
2. shall apply as regards the filing, prosecution and Maintenance of the
ELAN IONTOPHORETIC PATENT RIGHTS:
<PAGE> 20
2.1. IOMED at its expense shall be responsible to secure the grant of the
ELAN IONTOPHORETIC PATENT RIGHTS and to file patent applications
covering any improvements, to prosecute and defend such applications
against independent third party oppositions; and upon grant of any
letters patent covering such invention, to maintain such letters
patent in force. IOMED at its expense shall have the right to control
such filing, prosecution, defence and maintenance; provided however
ELAN shall be provided with copies of all substantive documents
relating to such filing, prosecution and defence in sufficient time to
review such documents and comment thereon prior to any deadline for
filing the same, if desired by ELAN. IOMED shall be entitled to
determine the patent filing strategy. ELAN shall execute all
documents, forms and declarations and otherwise co-operate fully to
enable IOMED to seek and obtain the broadest protection afforded by
the patent laws of the countries within the TERRITORY, whether during
the TERM of this Agreement or thereafter. For the avoidance of doubt,
the Parties agree that all information furnished to ELAN pursuant to
this Paragraph shall constitute CONFIDENTIAL INFORMATION for the
purposes of this Agreement.
2.2. If IOMED does not intend to make an application for patents or
continue prosecution of a pending application in respect of the ELAN
IONTOPHORETIC INTELLECTUAL PROPERTY in any or some (specifying which
countries of the TERRITORY, or fails within six (6) months of
disclosure under Article VII Paragraph 2.1. to make application in
one or more countries of the TERRITORY, ELAN shall have the option
and the right to apply for patents or other intellectual property
protection in respect thereof (in the countries where IOMED has not
applied). If IOMED does not intend to continue prosecution of a
pending application in any country of the TERRITORY, IOMED shall
promptly inform ELAN of such a decision and no later than in
sufficient time for ELAN to continue such prosecution. For the
avoidance of doubt, the Parties agree that such patents as are
obtained by ELAN pursuant to this Paragraph shall constitute ELAN
IONTOPHORETIC PATENT RIGHTS.
2.3 ELAN shall use its commercially reasonable endeavours to ensure that
the inventors of the ELAN IONTOPHORETIC PATENT RIGHTS shall be
reasonably available to IOMED to deal with queries, and complete and
execute documents, relating to the filing, prosecution and defence of
the ELAN IONTOPHORETIC PATENT RIGHTS.
<PAGE> 21
EXHIBIT 10.2
2.4. IOMED shall not abandon an ELAN IONTOPHORETIC PATENT RIGHT without the
prior written consent of ELAN, which shall not be unreasonably withheld. In
the event that the Parties agree that IOMED may abandon such an ELAN
IONTOPHORETIC PATENT RIGHT, ELAN shall have the right to take over the
prosecution and maintenance of such ELAN IONTOPHORETIC PATENT RIGHTS, which
rights shall no longer form a part of and be covered by the licenses
granted by ELAN pursuant to this Agreement.
3. IOMED and ELAN shall promptly inform the other in writing of any alleged
infringement of which it shall become aware by a third party of any patents
within the ELAN IONTOPHORETIC PATENT RIGHTS and provide such other with any
available evidence of infringement.
4. During the TERM and the ADDITIONAL TERM, IOMED shall have the right to
pursue at its own expense and for its own benefit any such infringements of
the ELAN IONTOPHORETIC PATENT RIGHTS and/or the IOMED PATENT RIGHTS. ELAN
shall agree to be named as a necessary party in an action brought by and
fully financed by IOMED and will reasonably co-operate with such action.
Any expenses borne by ELAN shall be reimbursed by IOMED. Any recovery
remaining after the deduction by IOMED of the reasonable expenses
(including attorney's fees and expenses) incurred in relation to such an
infringement proceeding shall constitute NET REVENUES for the purpose of
this Agreement. Should IOMED decide not to pursue such infringers of the
ELAN IONTOPHORETIC PATENT RIGHTS, ELAN may do so at its expense and for its
own benefit, and IOMED will reasonably co-operate with such action. Any
expenses borne by IOMED in co-operating with such action shall be
reimbursed by ELAN.
ARTICLE VIII: TERM AND TERMINATION
1. This Agreement is concluded for a period commencing as of the date of this
Agreement and shall expire on a country by country basis fifteen (15) years
starting from the EFFECTIVE DATE, or for the life of the last to expire patent
included in the ELAN IONTOPHORETIC PATENT RIGHTS and the DDS IONTOPHORETIC
PATENT RIGHTS which are used in the exploitation of the PRODUCTS, whichever is
longer ("the TERM"). From and after the tenth year of the TERM, in the event
that IOMED reasonably believes that there are ELAN IONTOPHORETIC PATENT
RIGHT(s) that are not used in connection with the exploitation of the PRODUCTS,
IOMED shall provide written notice thereof to ELAN, setting forth in reasonable
detail its reasons therefor.
Elan and IOMED shall thereupon each in good faith attempt to make a joint
determination of whether IOMED's conclusion is correct or if such ELAN
IONTOPHORETIC PATENT RIGHT(S) are in fact used in connection with such
exploitation; if the Parties are unable to agree upon such joint determination
within 90 days of such notice from IOMED, either party shall have the right to
have such matter arbitrated. Such arbitration shall be conducted before an
independent patent attorney reasonably selected by the Parties, or on such
other basis as shall be mutually reasonably agreeable, pursuant to the
provisions of Article IX Paragraph 14.
<PAGE> 22
2. In addition, for a period of five years commencing upon the expiration of
the TERM ("the ADDITIONAL TERM"), the licenses granted by ELAN pursuant to
Article II shall continue, provided, that the royalties payable during the
ADDITIONAL TERM to ELAN referred to in Article IV shall be fifty percent
(50%) of the amount otherwise payable during the TERM; thereafter, IOMED
shall have an exclusive paid-up royalty-free license to the ELAN
IONTROPHORETIC KNOW-HOW.
3. In addition to the rights of early or premature termination provided for
elsewhere in this Agreement, in the event that any of the term or
provisions hereof are incurably breached by either Party, the
non-breaching Party may immediately terminate this Agreement by written
notice. An incurable breach shall be committed when either Party is
dissolved, liquidated, discontinued, becomes insolvent or when any
proceeding is filed or commenced by either Party under bankruptcy,
insolvency or debtor relief laws (and not dismissed within ninety (90)
days). Subject to the other provisions of this Agreement in the event of
any other material breach, the non-breaching Party may terminate this
Agreement by the giving of written notice to the breaching Party that this
Agreement will terminate on the ninetieth (90th) day from notice unless
cure is sooner effected. If the breaching Party has proposed a course of
action to rectify the breach and is acting in good faith to rectify same
but has not cured the breach by the ninetieth (90th) day, the said period
shall be extended by such period as is reasonably necessary to permit the
breach to be rectified. In the event that a Party is entitled to
terminate this Agreement, such Party shall also be entitled to terminate
the DDS AGREEMENT. Furthermore in the event that a Party is entitled to
terminate the DDS AGREEMENT, such Party shall also be entitled to
terminate this Agreement. In the event that the breaching Party disputes
the validity of the of the right of the non-breaching Party to terminate
the Agreement pursuant to this Paragraph, either Party may refer the
dispute to an arbitrator pursuant to the provisions of Article IX
Paragraph 14. Pending the determination of the arbitrator, neither Party
may regard the Agreement as having been terminated and in particular shall
not allege or claim to any third party that the Agreement has been
terminated pursuant to this Paragraph.
<PAGE> 23
4. In the event that IOMED elects to proceed against ELAN for damages in
circumstances where IOMED would have been entitled to terminate the
Agreement pursuant to Article IX Paragraph 3 and IOMED obtains a final
order for damages from a court of competent jurisdiction which is not
subject of further appeal, IOMED may offset the said order for damages
against sums otherwise due to ELAN pursuant to Article IV until recovery
of the said judgment.
5. Upon termination of the Agreement:
5.1. any sums that were due from IOMED to ELAN prior to the exercise of
the right to terminate this Agreement shall be paid in full within
sixty (60) days of termination of this Agreement;
5.2. all confidentiality provisions (other than the obligations set out
in Article IX Paragraph 1.1, as they effect ELAN in the event of
termination of this Agreement by ELAN pursuant to Article VIII
Paragraph 3 due to the breach by IOMED) set out in this Agreement
shall remain in full force and effect for a period of five years;
5.3. all responsibilities and warranties shall insofar are appropriate
remain in full force and effect;
5.4. the rights of inspection and audit shall continue in force for the
period referred to in the relevant provisions of this Agreement;
5.5 termination of this Agreement for any reason shall not release any
Party hereto from any liability which, at the time of such
termination has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude
either party from pursuing all rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this
Agreement;
5.6 in the event of termination of this Agreement by ELAN or IOMED
pursuant to Article VIII Paragraph 3, IOMED and ELAN shall promptly
return to the other Party all CONFIDENTIAL INFORMATION received from
the other Party (except one copy of which may be retained for
archival purposes);
<PAGE> 24
5.7 in the event this Agreement is terminated by ELAN or IOMED pursuant
to Article VIII Paragraph 3, IOMED and its sublicensees shall have
the right for a period of **** from termination to sell or
otherwise dispose of the stock of any PRODUCTS then on hand, which
such sale shall be subject to Article IV and the other applicable
terms of this Agreement. The foregoing provisions of this Paragraph
shall be subject to the Provisions of such agreement or agreements
as ELAN and one or more sublicensees conclude pursuant to Article II
Paragraph 2.4;
5.8 in the event this Agreement is terminated by ELAN or IOMED pursuant
to Article VIII Paragraph 3, the licenses granted by ELAN to IOMED
shall terminate and ELAN shall thenceforth be entitled to exploit
the ELAN INTELLECTUAL PROPERTY together with any improvements made
by IOMED to the ELAN INTELLECTUAL PROPERTY; provided that the
foregoing provision shall be subject to the provisions of Article II
Paragraph 2.4. and any agreements entered into pursuant to the said
Paragraph, and
5.9. Articles I, Article II Paragraph 2.4, Article VI, Article VII
Paragraph 1, Article VIII and Article IX (other than Paragraph 3
thereof) shall survive the termination or expiration of this
Agreement for any reason.
ARTICLE IX: SUNDRY CLAUSES
1. Secrecy
1.1. Each of the parties agrees, during the TERM and the ADDITIONAL TERM, to
hold in confidence and not disclose to any third parties, including any of
the OFFERING PARTIES, except to the extent required by applicable law or
administrative or judicial process, the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY or the contents or nature thereof, provided, that the foregoing
covenant shall not be applicable to ELAN in the event that the foregoing
covenant shall not be applicable to ELAN in the event that IOMED (i)
abandons or (ii) ceases to develop or commercialize (and provides notice
thereof to ELAN) any such ELAN IONTOPHORETIC INTELLECTUAL PROPERTY and
ELAN determines subsequently to develop products or technologies based on
such ELAN IONTOPHORETIC INTELLECTUAL PROPERTY, irrespective of whether it
is reduced to patent.
<PAGE> 25
Each Party may make such disclosure to its directors, officers and agents
and, in the case of IOMED, its potential and actual sublicensees and other
parties to whom such disclosure is appropriate to enable IOMED to conduct
its regular business (each of whom shall be bound by IOMED's disclosure
agreements), who shall be informed of such confidentiality obligation and
for whose breach the disclosing party shall be responsible.
1.2. Subject to the provisions of Paragraph 1. 1., any whether written or oral
(oral information shall be reduced to writing within one month by the
Party giving the oral information and the written form shall be furnished
to the other Party) pertaining to the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY or the PRODUCTS that has been or will be communicated or
delivered by ELAN to IOMED, and any information from time to time
communicated or delivered by IOMED to ELAN, including without limitation,
trade secrets, business methods, and cost, supplier, manufacturing and
customer information, shall be treated by IOMED and ELAN, respectively, as
CONFIDENTIAL INFORMATION, and shall not be disclosed or revealed to any
third Party whatsoever or used in any manner except as expressly provided
for herein; provided, however, that such CONFIDENTIAL INFORMATION shall
not be subject to the restrictions and prohibitions set forth in this
section to the extent that such CONFIDENTIAL INFORMATION:
1.2.1. is available to the public in public literature or otherwise, or
after disclosure by one Party to the other becomes public
knowledge through no default of the Party receiving such
information; or
1.2.2. was known to the Party receiving such information prior to the
receipt of such information by such Party, whether received before
or after the date of this Agreement; or
1.2.3. is obtained by the Party receiving such information from a third
party not subject to a requirement of confidentiality with respect
to such information; or
1.2.4. is required to be disclosed pursuant to: (A) any order of a court
having jurisdiction and power to order such information to be
released or made public; or (B) other requirement of law, provided
that if the receiving Party becomes legally required to disclose
any CONFIDENTIAL INFORMATION, the receiving Party shall give the
disclosing Party prompt notice of such fact so that the disclosing
Party may obtain a protective order or other appropriate remedy
concerning any such disclosure.
<PAGE> 26
The receiving Party shall fully cooperate with the disclosing
Party in connection with the disclosing Party's efforts to obtain
any such order or other remedy. If any such order or other remedy
does not fully preclude disclosure, the receiving Party shall make
such disclosure only to the extent that such disclosure is legally
required; or
1.2.5. is independently developed by or for the Party by persons not
having access to the CONFIDENTIAL INFORMATION of the other Party.
1.3. Each Party shall take all such precautions as it normally takes with its
own CONFIDENTIAL INFORMATION to prevent any improper disclosure of such
CONFIDENTIAL INFORMATION to any third Party, provided however, that such
CONFIDENTIAL INFORMATION may be disclosed within the limits required to
obtain any authorization from the FDA or any other United States of
America or foreign governmental or regulatory agency or, with the prior
written consent of the other Party, which shall not be unreasonably
withheld, or as may otherwise be required in connection with the purposes
of this Agreement.
1.4. IOMED agrees that it will not use, directly or indirectly, any ELAN
IONTOPHORETIC INTELLECTUAL PROPERTY, or other CONFIDENTIAL INFORMATION
disclosed to IOMED or obtained from ELAN pursuant to this Agreement, other
than as expressly provided herein. ELAN agrees that it will not use,
directly or indirectly, any IOMED KNOW-HOW, IOMED PATENT RIGHTS or other
CONFIDENTIAL INFORMATION disclosed to ELAN or obtained from IOMED pursuant
to this Agreement, other than as expressly provided herein.
1.5 IOMED and ELAN will not publicize the existence of this Agreement in any
way without the prior written consent of the other subject to the
disclosure requirements of applicable laws and regulations. In the event
that either Party wishes to make an announcement concerning the Agreement,
that Party will seek the consent of the other Party. The terms of any
such announcement shall be agreed in good faith.
2. Assignments/Subcontracting
IOMED may not assign (other than by operation of law in the event of an
acquisition of IOMED, or a merger or similar transaction, subject to the
provisions as set forth in Article IX Paragraph 3) the rights licensed by
ELAN under Article II without the prior written consent of ELAN, which may
be withheld in ELAN's sole discretion. ELAN shall be entitled to assign
its rights and obligations to an AFFILIATE.
<PAGE> 27
ELAN may not assign to an unaffiliated third party (other than by
operation of law in the event of an acquisition of ELAN, or a merger or
similar transaction) its rights under this Agreement without the prior
written consent of IOMED, which may be withheld in IOMED's sole
discretion.
3. Certain Changes of Control.
In the event that an OFFERING PARTY makes or signifies its intention of
make a bona fide offer which would result in such a party owning,
directly or indirectly, more than fifteen per cent (15%) of IOMED's
voting stock, on a fully-diulted basis, or otherwise controlling the
IOMED's Board of Directors, or otherwise obtains substantial contractual
rights pursuant to an agreement with IOMED to the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY (as reasonably determined by ELAN) (each, a
"Control Transaction"), IOMED shall (x) not accept such offer until it
shall have complied with the remaining provision of this Paragraph
without ELAN's consent (in its sole discretion) and (y) advise the
appropriate OFFERING PARTY that, in lieu of IOMED accepting such offer,
such OFFERING PARTY should make a separate offer with respect to that
portion of IOMED's business that relates to the FIELD, and not to the
remaining portion of IOMED's business. ELAN shall have a period of thirty
(30) days to conduct appropriate due diligence and to determine whether
it desires to match an offer made by an OFFERING PARTY with respect to
that portion of IOMED's business that relates to the FIELD, (including
the same economic, payment and other terms); it being understood that
IOMED shall make available to ELAN reasonable and sufficient information
to enable ELAN to conduct such due diligence.
In the event that ELAN determines to make such offer, IOMED shall accept
ELAN's offer and expeditiously consummate such transaction with ELAN.
Notwithstanding the foregoing, in the event that an OFFERING PARTY
consummates a Control Transaction without the consent of the IOMED's
Board of Directors (as such Board is comprised at the time such
transaction is first publicly announced or commenced) (including without
limitation, in connection with a tender offer or offers or proxy
solicitation), ELAN shall have the right in its sole discretion, to
terminate the licences granted by ELAN pursuant to this Agreement,
without payment or penalty to IOMED.
4. Parties bound
This Agreement shall be binding upon and enure for the benefit of Parties
hereto, their successors and permitted assigns.
<PAGE> 28
5. Severability
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto, (i) such provision will be deemed amended
to conform to applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such agreement
or such earlier date as the Parties may agree, and (ii) the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not be impaired or affected in any way.
6. Force Majeure
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
cause beyond its reasonable control, including, without limitation, acts
of God, fires, strikes, acts of war, or intervention of a Government
Authority, non-availability of raw materials, but any such delay or
failure shall be remedied by such Party as soon as practicable.
7. Relationship of the Parties
Nothing contained in this Agreement is intended or is to be construed to
constitute ELAN and IOMED as partners or joint venturers or either Party
as an employee of the other. Neither Party hereto shall have any express
or implied right or authority to assume or create any obligations on
behalf of or in the name of the other Party or to bind the other Party to
any contract, agreement or undertaking with any third party
8. Amendments
No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a duly
authorized representative of both Parties.
9. Waiver
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of any
right arising under this Agreement.
<PAGE> 29
10. Headlines
The section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the Parties.
Save as otherwise provided herein, references to articles, paragraphs,
clauses and appendices are up to those contained in this Agreement.
11. No effect on other agreements
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement.
12. Applicable Law
This Agreement (a) shall be governed by and construed in accordance with
the internal laws of the State of New York, without regard to principles
of conflicts of law, and subject to those provisions where the Parties
have conflicts of law expressly agreed to submit a dispute to arbitration,
each party consents to the exclusive jurisdiction of any Federal or state
court sitting in the County, City and State of New York over any dispute
arising from this Agreement.
13. Notice
13.1. Any notice to be given under this Agreement shall be sent in writing
in English by registered airmail or telefaxed to:
ELAN at
Elan Corporation plc.
Monkstand, Athlone,
Co. Westmeath,
Ireland.
Attention: President Elan Pharmaceutical
Technologies, a division of Elan Corporation
plc
Telephone: 353 902 94666
Telefax: 353 902 92427
<PAGE> 30
IOMED at
IOMED, Inc.
3385 West 1820 South,
Salt Lake City, UT 84104,
United States of America
Attention: President and Chief Executive Officer
Telephone: 1-801-975-1191
Telefax: 1-801-972-9072
or to such other addresses) and telefax numbers as may from time to
time be notified by either Party to the other hereunder.
13.2. Any notice sent by mail shall be deemed to have been delivered
within seven (7) working days after dispatch and any notice sent by
telefax shall be deemed to have been delivered within twenty four
(24) hours of the time of the dispatch. Notice of change of address
shall be effective upon receipt provided that such date of receipt
must be a business day for the Party to whom the notice is
delivered.
14. Arbitration
Any dispute under this Agreement which is not settled by mutual consent
and which is the subject of an arbitration clause shall be finally settled
by binding arbitration conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by an arbitrator
appointed in accordance with said rules. The arbitration shall be held in
New York, New York and the arbitrator shall be to the extent practicable
experienced as to the subject matter of the dispute such as an independent
expert in pharmaceutical product development and marketing (including
clinical development and regulatory affairs) or an independent patent
attorney as the case may be. The arbitrator shall determine what
discovery will be permitted, consistent with the goal of limiting the cost
and time which the Parties must expend for discovery; provided the
arbitrator shall permit such discovery as he deems necessary to permit an
equitable resolution of the dispute. Any written evidence originally in a
language other than English shall be submitted in English translation
accompanied by the original or a true copy thereof. The costs of the
arbitration, including administrative and arbitrator's fees, shall be
shared equally by the Parties and each Party shall bear its own costs and
attorneys' and witness' fees incurred in connection with the arbitration,
provided that the prevailing Party may be awarded the reasonable costs and
fees incurred in connection with the arbitration at the discretion of the
arbitrator.
<PAGE> 31
A disputed performance or suspended performance pending the resolution of
the arbitration must be completed within thirty (30) days following the
final decision of the arbitrators or such other reasonable period as the
arbitrators determine in a written opinion. Any arbitration subject to
this Paragraph 14 shall be completed within one (1) year from the filing
of notice of a request for such arbitration. The arbitration proceedings
and the decision shall not be made public without the joint consent of the
Parties and each Party shall maintain the confidentiality of such
proceedings and decision unless (a) otherwise permitted by the other Party
or (b) otherwise required by the applicable law in which case the
provisions of Article IX Paragraph 1.2.4. shall be applicable. The
Parties agree that the decision shall be the sole, exclusive and binding
remedy between them regarding any and all disputes, controversies, claims
and counterclaims presented to the arbitrators. Application may be made to
any court having jurisdiction over the Party (or its assets) against whom
the decision is rendered for a judicial recognition of the decision and an
order of enforcement.
15. Withholding
Any income or other taxes which IOMED is required by law to pay or
withhold on behalf of ELAN with respect to royalties and any other moneys
payable to ELAN under this Agreement shall be deducted from the amount of
such royalties and moneys due. IOMED shall furnish ELAN with proof of
such payments. Any such tax required to be paid or withheld shall be an
expense of and borne solely by ELAN. IOMED shall promptly provide ELAN
with a certificate or other documentary evidence to enable ELAN to support
a claim for a refund or a foreign tax credit with respect to any such tax
so withheld or deducted by IOMED. Both Parties will reasonably cooperate
in completing and filing documents required under the provisions of any
applicable tax treaty or under any other applicable law, in order to
enable IOMED to make such payments to ELAN without any deduction or
withholding.
16. Indemnity
16.1. ELAN shall indemnify, defend and hold harmless IOMED from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorneys' fees) to which IOMED is or may become subject
insofar as they arise out of or are alleged or claimed to arise out of any
breach by ELAN of any of its obligations under this Agreement or
warranties of ELAN.
<PAGE> 32
16.2. IOMED shall indemnify, defend and hold harmless ELAN from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorneys' fees) to which ELAN is or may become subject
insofar as they arise out of or are alleged or claimed to arise out of
any breach by IOMED of any of its obligations under this Agreement or
warranties of IOMED. IOMED shall assume the sole and entire
responsibility and shall indemnify and save harmless ELAN from any and
all claims, liabilities, expenses, including reasonable attorney's fees,
responsibilities and damages by reason of any claim, proceedings, action,
liability or injury arising out of any defect in the PRODUCTS, including
the manufacture, transport, packaging, storage, handling, distribution,
marketing or sale of the PRODUCTS by IOMED.
16.3. As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall:
16.3.1 fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
16.3.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
16.3.3. assist in the investigation and defence of such claim or
proceeding;
16.3.4. not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which
consent shall not be unreasonably withheld; and
16.3.5. take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
16.4. Notwithstanding anything to the contrary in this Agreement, ELAN and IOMED
shall not be liable to the other by reason of any representation or
warranty, condition or other term or any duty of common law, or under the
express terms of this Agreement for any consequential or incidental loss
or damage (whether for loss of profit or otherwise) and whether occasioned
by the negligence of the respective Parties, their employees or agents or
otherwise.
<PAGE> 33
17. Entire Agreement
This Agreement including its Appendices, together with the DDS AGREEMENT,
the Note Purchase and Warrant Agreement and Registration Right Agreement
being entered into between Elan International Services Limited, Elan
International Management Limited and IOMED the Promissory Note and Secured
Promissory Note being issued by IOMED to Elan International management
Limited and the further documents referred to therein, each of which are
being executed of even date herewith, set forth the entire agreement and
understanding of the Parties with respect to the subject matter hereof,
and supersedes all prior discussions agreements and writings in relating
thereto, including the letter of agreement of 31st March 1997.
18. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed an original and which together shall constitute one instrument.
IN WITNESS THEREOF the Parties hereto have executed this Agreement in duplicate.
Executed by IOMED on ____ April, 1997
By: ______________________________
Name: ____________________________
Title: ___________________________
Executed by ELAN _____ April, 1997
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE> 34
APPENDIX A
ASSETS
****
Summary of Design Assets for mechanical and electronic elements for PANODERM
Clinical Device
Tangible
* Industrial design
* Specifications for components and electronic elements for all other
components for which ELAN has specifications.
* Tooling
* Know how for gluing *******
* Source and supply of connector
Pre-Production Design
Tangible
* Industrial design
* Specifications for components and electronic elements and for all other
components for which ELAN has specifications.
* Plan for miniaturisation of components
* Design for purpose built connector
* Design for full water resistant connector between patch and control housing
* Full exploration of all possible concepts for mass production with
particular emphasis on use of flex circuit and printed electrodes (note:
these designs have been explored fully with supplier and would be suitable
for **** *** ********* *** ********** ******
Materials - stock in hand in Athlone
* Materials for the manufacture of *** ********* ****** including: active
and counters electrodes - ************* ******** and ******, up to four
different suppliers (including ******** electrodes) - several thousands of
pairs
* Pre-formed patches - *************** ** ****
* Batteries - several hundred
* Other materials, e.g., adhesive, sachets, etc.
<PAGE> 35
***** ********** ****** * ******
Product drawing file
Assembled units - 100 (approx.)
Semi assembled - 100 (approx.)
Components except for PCBs for 1,000 units (approx.)
Three test benches exclusive for PANODERM
Assembly tools
<PAGE> 36
APPENDIX B
ELAN IONTOPHORETIC KNOW-HOW
*** ********* ******
Summary of Design Assets for mechanical and electronic elements for PANODERM
Clinical Device
Intangible
* Supplier relationships including quality audits, etc.
* Source of parts
Pre-Production Design
Intangible
* Supplier relationships, including quality audits
* Source of all parts
* Source of potential production suppliers for all parts
*********** ***** ****** * ******
Intangible Assets
* Drug candidate screening, in vitro/animal/human - knowledge of
pre-requisites for iontophoretic delivery
* Clinical experience - full reports, IND filings
* Scientific credibility and recognition
* Publications/presentations and patent
* Regulatory filings
* Component candidate screening (e.g., hydrogels, adhesives, plastics,
conductive elements, drug containment elements, batteries, etc.)
With respect to the foregoing:
Copies of relevant notebooks
Copies of technical, summary and other market reports
<PAGE> 37
APPENDIX C
ELAN IONTOPHORETIC PATENT RIGHTS
<PAGE> 38
DOCKET FAMILY: 1805
[ELAN LOGO] Art = Panoderm
****
****
****
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA ELAN CORPORATION,* 90/10260 90/10280
90.1605.ZA PLC DECEMBER 20, 1990 OCTOBER 30, 1991
- ------------------------------------------------------------------------------------------------------
ITALY ELAN CORPORATION,* 22412A/90 1244030
90.1805.IT PLC DECEMBER 16, 1990 JUNE 28, 1994
- ------------------------------------------------------------------------------------------------------
ISRAEL ELAN CORPORATION,* 96735 98735
90.1805.IL PLC DECEMBER 28, 1990 OCTOBER 1, 1995
- ------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION,* 4813/90 63598
90.1805C.IE PLC DECEMBER 20, 1990 APRIL 26, 1995
- ------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION,* 364/90 62025
90.1805.IE PLC JUNE 29, 1990 DECEMBER 2, 1994
- ------------------------------------------------------------------------------------------------------
UNITED KINGDOM ELAN CORPORATION,* 9027883.3 2239803
90.1805.GB PLC DECEMBER 20, 1990 AUGUST 3, 1994
- ---------
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
INTELLECTUAL PROPERTY DEPARTMENT March 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:49:59 PM
<PAGE> 39
DOCKET FAMILY: 1805
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SWITZERLAND ELAN CORPORATION,* 04145/90.9 684725 G 684725
90.1805.CH PLC DECEMBER 20, 1990 DECEMBER 15, 1994 JUNE 15, 1995
- ------------------------------------------------------------------------------------------------------
AUSTRALIA ELAN CORPORATION,* 68330/90 652,135 652135
90.1805.AU PLC DECEMBER 20, 1990 AUGUST 16, 1994 DECEMBER 6, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Subject to the joint ownership interest held by ASULAB S.A. and/or SMH Swiss
Corporation for Microelectronics and Watchmaking Industries Ltd.
PANODERM ISSUED PATENTS
INTELLECTUAL PROPERTY DEPARTMENT March 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:49:59 PM
<PAGE> 40
DOCKET FAMILY: 1807
[ELAN LOGO] ART = PANODERM
DRUG DELIVERY DEVICE
I.E.C.D.
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCET NO. PATENTEE FILING DATE PUBLICATION DATA PATENT ISSUE DATA
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA ELAN CORPORATION, 92/8689 92/8689
92.1807.ZA PLC NOVEMBER 11, 1992 JULY 28, 1992
- ----------------------------------------------------------------------------------------------------------
UNITED STATES ELAN CORPORATION, 08/244,094 5,633,995
94.1807.US PLC MAY 13, 1994 JULY 9, 1996
- ----------------------------------------------------------------------------------------------------------
NEW ZEALAND ELAN CORPORATION, 245091 1378 245091
92.1807.NZ PLC NOVEMBER 11, 1992 MARCH 25, 1994 AUGUST 10, 1994
- ----------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION, 2798/92 66757
92.1667.IE PLC NOVEMBER 10, 1992 JUNE 21, 1995
- ----------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION, 3941/91 68767
91.1807.IE PLC NOVEMBER 13, 1991 JUNE 21, 1993
- ----------------------------------------------------------------------------------------------------------
AUSTRALIA ELAN CORPORATION, 29099/92 664214
94.1807.AU PLC MAY 28, 1994 MARCH 19, 1996
- ----------------------------------------------------------------------------------------------------------
INTELLECTUAL PROPERTY DEPARTMENT MARCH 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION PANODERM ISSUED PATENTS 2:51:20 PM
</TABLE>
<PAGE> 41
DOCKET FAMILY: EMT 6
[ELAN LOGO] ART = PANODERM
****
****
****
****
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATA PATENT ISSUE DATA
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA EMT 91/9794 91/9794
91.EMT 6.AZ DECEMBER 12, 1991 AUGUST 25, 1992
- ----------------------------------------------------------------------------------------------------------
UNITED STATES EMT 07/627,104 5,158,591
90.EMT 6.US DECEMBER 13, 1900 OCTOBER 20, 1992
- ----------------------------------------------------------------------------------------------------------
TAIWAN EMT 60109555 199,665 60732
91.EMT 8.TI DECEMBER 5, 1991 FEBRUARY 11, 1993 JUNE 1, 1993
- ----------------------------------------------------------------------------------------------------------
NEW ZEALAND EMT 2406875 240675 240875
91.EMT 6.NZ DECEMBER 5, 1991 APRIL 27, 1994 AUGUST 16, 1994
- ----------------------------------------------------------------------------------------------------------
EPO EMT 92901285.6 516,763 516,763
92.EMT 6.EP DECEMBER 13, 1991 DECEMBER 9, 1992
- ----------------------------------------------------------------------------------------------------------
AUSTRALIA EMT 90587191 91/90, 587 642112
94.EMT 6.AU PLC DECEMBER 13, 1991 JULY 8, 1982 FEBRUARY 1, 1994
- ----------------------------------------------------------------------------------------------------------
ER, AUSTRIA, BELGIUM, FRANCE, GERMAN, GREAT BRITAIN, GREECE, ITALY, MARCH 3, 1997
LUXEMBOURG, NETHERLANDS, SPAIN, SWEDEN, SWITZERLAND & LICHTENSTEIN 3:11:21 PM
INTELLECTUAL PROPERTY DEPARTMENT
ELAN PHARMACEUTICAL RESEARCH CORPORATION PANODERM ISSUED PATENTS
</TABLE>
<PAGE> 42
Docket Family: EMT 8
[ELAN LOGO]
Art = Panoderm
****
****
****
<TABLE>
<CAPTION>
Country/ Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Issue Date
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES 07/759,006 5,356,632
91.EMT 8.US EMT September 12, 1991 October 18, 1994
EPO 92630083.1 532,451 532451
92.EMT 8.EP(14) EMT September 10, 1991 March 17, 1993 January 17, 1996
</TABLE>
EP(14) Austria, Belgium, Denmark, France, Germany, Great Britain, Greece,
Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland &
Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 3:14:49PM
<PAGE> 43
Docket Family: EMT 9
[ELAN LOGO]
Art = Panoderm
****
****
****
****
****
<TABLE>
<CAPTION>
Country/ Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Issue Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States EMT 08/077,146 5380272
93.EMT 9C1.US June 16, 1993 January, 16, 1995
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 3:16:23 PM
<PAGE> 44
PROPRIETARY & CONFIDENTIAL INFORMATION
SUMMARY OF ELAN'S PENDING PATENT APPLICATIONS
FOR IONTOPHORETIC TECHNOLOGY
<PAGE> 45
PROPRIETARY & CONFIDENTIAL INFORMATION
****
<PAGE> 46
[ELAN LOGO]
APPENDIX D
IOMED CURRENT PRODUCTS
****
<PAGE> 1
EXHIBIT 10.3
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION
This Agreement is made the 14th day of April 1997
BY AND BETWEEN
DRUG DELIVERY SYSTEMS, INC.
A Corporation organized and existing under the laws of the State of New
York, having an office at 1300 Gould Drive, Gainesville, Georgia 30504,
United States of America
AND
IOMED, Inc.
A Corporation organized and existing under the laws of the State of Utah,
having an office at 3385 West 1820 South Salt Lake City, UT 84104, United
States of America.
<PAGE> 2
WHEREAS:
- -- DDS is beneficially entitled to the use of various patents, including the
DDS IONTOPHORETIC PATENT RIGHTS, which have been granted or are pending
under the International Convention in relation to the development and
production of iontophoretic transdermal devices and drug specific dosage
forms for pharmaceutical devices, products and processes, and
- -- IOMED is desirous of entering into a licensing agreement with DDS to
further develop, manufacture and have manufactured in accordance with the
terms of this Agreement and to market, sell and distribute the PRODUCTS in
the TERRITORY without infringing any of the DDS IONTOPHORETIC PATENT
RIGHTS held by DDS, and
- -- DDS is prepared to license the DDS IONTOPHORETIC PATENT RIGHTS in the
TERRITORY to IOMED, and
NOW IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I. DEFINITIONS
1.1. In the present Agreement and any further agreements based thereon between
the Parties hereto, the following definitions shall prevail:
1. ADDITIONAL TERM shall have the meaning set forth in Article VIII,
Paragraph 2.
2. AFFILIATE shall mean any corporation or entity controlling,
controlled by or under the common control of DDS or IOMED as the
case may be. For the purpose of this paragraph, "control" shall
mean the direct or indirect ownership of at least fifty percent
(50%) of the outstanding shares or other voting rights of the
subject entity to elect directors, or if not meeting the preceding
criterion any entity owned or controlled by or owning or controlling
at the maximum control or ownership right permitted in the country
where such entity exists.
<PAGE> 3
3. Agreement shall mean this agreement.
4. cGCP, cGLP and cGNO shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing
Practices respectively.
5. CONFIDENTIAL INFORMATION shall mean information, material or data
relating to the FIELD not generally known to the public.
CONFIDENTIAL INFORMATION in tangible form disclosed hereunder shall
be marked as "Confidential" at the time it is delivered to the
receiving Party. CONFIDENTIAL INFORMATION disclosed orally shall be
identified as confidential or proprietary when disclosed and such
disclosure of CONFIDENTIAL INFORMATION shall be confirmed in writing
within thirty (30) days by the disclosing Party.
6. DDS shall mean Drug Delivery Systems, Inc. and any of its
AFFILIATES.
7. DDS IONTOPHORETIC PATENT RIGHTS shall mean all granted patents and
pending patent applications owned by, or licensed by DDS, the
current status of which is set forth in Appendix C. DDS
IONTOPHORETIC PATENT RIGHTS shall also include all conditions,
continuations-in-part, divisionals, re-issues and re-examinations of
such patents and patent applications and any patents issuing thereon
and extensions of any patents licensed hereunder and all foreign
counterparts thereto.
8. EFFECTIVE DATE shall mean the 14th day of April 1997.
9. ELAN shall mean Elan Corporation plc and any of its AFFILIATES.
10. ELAN AGREEMENT shall mean the license agreement entered into between
IOMED and ELAN on the EFFECTIVE DATE.
11. ELAN IONTOPHORETIC KNOW-HOW shall have the meaning as defined in
Article I of the ELAN AGREEMENT.
12. ELAN IONTOPHORETIC PATENT RIGHTS shall have the meaning as defined
in Article I of the ELAN AGREEMENT.
13. FDA shall mean the United States Food and Drug Administration or any
other successor agency, whose approval is necessary to market the
PRODUCTS in the United States of America and its foreign equivalents
in such other countries of the TERRITORY where IOMED intends to
obtain regulatory approval.
<PAGE> 4
14. FIELD shall mean ****.
15. IOMED shall mean IOMED, Inc. and any of its AFFILIATES, including
DERMION Inc.
16. IOMED KNOW-HOW shall mean all scientific or technical knowledge,
information or expertise developed, produced, created or acquired by
or an behalf of IOMED which is not generally known to the public, or
developed by or on behalf of IOMED during the term of this
Agreement, relating to the PRODUCTS, excluding ELAN IONTOPHORETIC
KNOW-HOW, whether or not covered by any patent copyright, design,
trademark or other industrial or intellectual property rights.
17. IOMED PATENT RIGHTS shall mean all granted patents and pending
patent applications owned or licensed by IOMED relating to the
FIELD, excluding ELAN IONTOPHORETIC PATENT RIGHTS and DDS
IONTOPHORETIC PATENT RIGHTS. IOMED PATENT RIGHTS shall also include
all continuations, continuations-in-part, divisionals, re-issues and
re-examinations of such patents and patent applications and any
patents issuing thereon and extensions thereof and all foreign
counterparts thereto. IOMED PATENT RIGHTS shall further include any
patents or patent application covering any improved methods of
making or using the PRODUCTS invented or acquired by IOMED during
the term of this Agreement.
18. IND shall mean one or more investigational new drug applications
filed by ELAN or to be filed by IOMED with the FDA-
19. NET REVENUES shall mean:
19.1. ****:
19.1.1 ****, or
19.1.2. ****, or
<PAGE> 5
19.1.3. ****; and
19.2. ****:
19.2.1. ****;
19.2.2. ****;
19.2.3. ****;
19.2.4. ****; and
19.2.5. ****.
****.
<PAGE> 6
****.
****.
****.
20. NDA shall mean one or more of the New Drug Applications which IOMED
shall file, including any supplements or amendments thereto and
510(k)s which IOMED may file, for the PRODUCTS with the FDA.
21. OFFERING PARTY shall mean ****.
22. Party shall mean IOMED or DDS, as the case may be. "Parties" shall
mean IOMED and DDS.
23. PRODUCT(S) shall mean all devices or any parts thereof developed,
manufactured or sold by or on behalf of IOMED within the FIELD,
****.
24. TERM shall have the meaning set forth in Article VIII Paragraph 1.
25. TERRITORY means all countries of the world.
26. $ shall mean United States Dollars.
<PAGE> 7
1.2 In this Agreement
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice verse.
1.2.2 any reference to a Article or Appendix shall, unless otherwise
specifically provided, be to an Article or Appendix of this
Agreement.
1.2.3 the headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
ARTICLE II: THE LICENSE
1.1. DDS shall remain Proprietor of all the DDS IONTOPHORETIC PATENT RIGHTS but
hereby grants to IOMED for the term of the Agreement an exclusive
(including as to DDS) license in the TERRITORY, with the right to grant
sublicenses pursuant to and in accordance with the provisions of Article
II Paragraph 2, to research, develop, manufacture, have manufactured for
IOMED (or its permitted sublicensees), use, sell and otherwise
commercialize the DDS IONTOPHORETIC PATENT RIGHTS and the PRODUCTS in the
FIELD under the terms and conditions set out herein.
1.2. Subject to earlier termination of the Agreement pursuant to Article VIII,
at the end of the ADDITIONAL TERM the rights granted by DDS to IOMED
pursuant to Paragraph 1.1 above shall be exclusive, paid-up and
irrevocable.
2.1. IOMED may sublicense rights which incorporate the DDS IONTOPHORETIC PATENT
RIGHTS ****, without the prior written consent of DDS .
2.2. Any sublicense other than permitted by Paragraph 2. 1. above, ****,
shall require the prior written consent of DDS, which may be withheld in
the sole discretion of DDS.
<PAGE> 8
2.3. NO sublicense granted by IOMED pursuant to Article II Paragraph 2 shall
authorize or permit the sublicensee to grant further sublicenses ****,
IOMED shall use its reasonable endeavors to ensure that DDS shall have the
same rights of audit and inspection vis a vis the sublicensee as DDS has
pursuant to this Agreement concerning IOMED.
2.4. Insofar as the obligations owed by IOMED to DDS are concerned, IOMED shall
remain responsible for all acts and omissions of any sublicensee as if
such acts and omissions were by IOMED; provided that no such acts or
omissions of such sublicensee will constitute a material breach by IOMED
for the purposes of Article VIII Paragraph 3. In the event that DDS
terminates the Agreement pursuant to the provisions of Article VIII
Paragraph 3, due to the default of IOMED, then DDS shall, with IOMED's
consent and assistance, notify each sublicensee appointed pursuant to
Article II Paragraphs 2.1 and 2.2 of its termination. If any sublicensee
elects to notify DDS that it requires the continuation of the licenses
granted to IOMED pursuant to this Agreement, DDS shall promptly enter into
good faith negotiations with such sublicensee to establish a direct
contractual nexus between DDS and such sublicensee. Such contractual
nexus shall subject to DDS's reasonable discretion be on commercially
reasonable terms and shall to the extent practicable be on terms no less
favorable to the to the sublicensee than the terms of such sublicensees'
agreement with IOMED, and shall provide that the sublicensee shall take
over the applicable obligations owed by IOMED to DDS pursuant to this
Agreement. Sales of PRODUCTS and other consideration payable to such a
sublicensee in relation to the products shall constitute NET REVENUES for
the purpose of calculating the sums payable by the sublicensee to DDS.
****.
3. It is contemplated that the furnishing of copies of relevant patent
documentation regarding the DDS IONTOPHORETIC PATENT RIGHTS shall be
completed within six months of the EFFECTIVE DATE.
4. LEFT DELIBERATELY BLANK
<PAGE> 9
5. IOMED shall mark or have marked the patent number on all PRODUCTS, or
otherwise reasonably communicate to the trade concerning the existence of
any DDS IONTOPHORETIC PATENT RIGHTS for the countries within the TERRITORY
in such a manner as to ensure compliance with, and enforceability under,
applicable laws.
PERFORMANCE BY IOMED
6. IOMED shall use commercially reasonable efforts consistent with its
financial resources and capital constraints, to research, develop,
register, market and promote the PRODUCTS and to exploit the DDS
IONTOPHORETIC PATENT RIGHTS in the major markets of the TERRITORY.
7. **** IOMED shall report on the ongoing sales performance of the PRODUCTS,
and the exploitation of the DDS IONTOPHORETIC PATENT RIGHTS in the
TERRITORY, ****. For the avoidance of doubt, the Parties agree that all
information furnished to DDS pursuant to this Paragraph shall constitute
CONFIDENTIAL INFORMATION for the purpose of this Agreement.
8. LEFT DELIBERATELY BLANK
9. LEFT DELIBERATELY BLANK
10. LEFT DELIBERATELY BLANK
11. LEFT DELIBERATELY BLANK
12. LEFT DELIBERATELY BLANK
13. IOMED hereby confirms that it intends to manufacture or procure the
manufacture of the PRODUCTS in a manner which fully complies with all
applicable statutes, ordinances, and regulations of the United States of
America and other countries with respect to the manufacture of the
PRODUCTS including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder, cGLP, cGCP and cGMP.
<PAGE> 10
ARTICLE III: DEVELOPMENT OF THE PRODUCT
1. IOMED shall be responsible for the cost of the further development,
registration, manufacture and marketing of the PRODUCTS.
ARTICLE IV: FINANCIAL PROVISIONS
1. License Royalties
1. In consideration of the rights and license granted to IOMED to the DDS
IONTOPHORETIC PATENT RIGHTS by virtue of this Agreement, IOMED shall pay
to DDS, the sum of **** United States Dollars **** in cash by wire
transfer due upon execution of this Agreement and payable within two
business days of the EFFECTIVE DATE.
2. Royalty on NET REVENUES
2.1. In consideration of the license of the DDS IONTOPHORETIC PATENT RIGHTS to
IOMED, and subject to the provisions of Article IV paragraphs 2.2. and
2.3, the royalty payable by IOMED to DDS shall be **** percent (****%) on
NET REVENUES generated on or after the EFFECTIVE DATE.
2.2. ****.
<PAGE> 11
IOMED shall not be required to pay a royalty to DDS in excess of one
percent (1%) of NET REVENUES on commercialization of the products listed
in Appendix D hereto which, the Parties acknowledge, are
presently-marketed products of IOMED. In the event of any dispute
relating to the foregoing provisions of this Paragraph, the Parties shall
cause such dispute to be arbitrated before an experienced patent attorney.
In such event the procedure set forth in Article VIII Paragraph 14 shall
to the extent practicable apply to the conduct of such arbitration.
2.3. LEFT DELIBERATELY BLANK
2.4. IOMED shall not discriminate in its commercialization strategy and pricing
policy as between the PRODUCTS referred to in Article IV Paragraphs 2. 1.
and 2.2.
2.5. The Parties agree that when IOMED provides free samples of PRODUCT to
promote the further sale of PRODUCTS, such provision of the samples shall
not generate any royalty payments to DDS by IOMED, its and/or
sublicensees; provided however, that such sampling is specifically
designed to promote sales of PRODUCT and is no less favorable to DDS than
IOMED's standard sampling practice for similar products.
ROYALTY PAYMENTS, REPORTS AND RECORDS
3.1. Within forty five (45) days of the end of each quarter, IOMED shall notify
DDS of the NET REVENUES of- each of the PRODUCTS and arising from the
exploitation of the DDS IONTOPHORETIC PATENT RIGHTS and/or the IOMED
PATENT RIGHTS and/or the IOMED KNOW-HOW, for that preceding quarter.
Payments shown by each calendar quarter report to have accrued shall be
due on the date such report is due. All payments due hereunder shall be
made to the designated bank account of DDS in accordance with such timely
written instructions as DDS shall from time to time provide.
3.2. IOMED shall keep and shall cause its AFFILIATES and sublicensees to keep
true and accurate records of sales of PRODUCTS, other transactions giving
rise to NET REVENUES, and the royalties payable to DDS under Article IV
hereof and shall deliver to DDS a written statement thereof within forty
five (45) days following the end of each calendar quarter (or any part
thereof in the first or last calendar quarter of this Agreement) for such
calendar quarter.
<PAGE> 12
Said written statements shall set forth (I) for each PRODUCT ****,
the calculation of NET REVENUES from gross revenues during that calendar
quarter, the applicable percentage royalty rates, and a computation of
such royalties due and (II) such details of the transactions arising from
the exploitation of the DDS IONTOPHORETIC PATENT RIGHTS and/or the IOMED
KNOW-HOW as are relevant to the calculation of NET REVENUES (the "Royalty
Statement").
3.3. All payments due hereunder shall be made in United States Dollars.
Payments due on NET REVENUES received in a currency other than United
States Dollars shall first be calculated in the foreign currency and then
converted to United States Dollars on the basis of the average of the
exchange rates in effect for the purchase of United States Dollars with
such foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to the
currency of the country or origin of such payment for the last business
day of each mouth for which the payment is being made.
3.4. DDS shall have the right to have access, on reasonable notice, to IOMED's
or IOMED's sublicensees' financial documentation and records during
reasonable business hours for the purpose of verifying the royalties
payable as provided in this Agreement for the two preceding years. This
right may not be exercised more than once in any calendar year, and once a
calendar year is audited it may not be reaudited. For the avoidance of
doubt, the Parties agree that all information furnished to DDS pursuant to
this Paragraph shall constitute CONFIDENTIAL INFORMATION for the purposes
of this Agreement.
Any adjustment required by such inspection shall be made within thirty
(30) days of the agreement of the Parties or, if not agreed, upon the
determination of an arbitrator to whom any dispute under this Paragraph
shall be submitted to arbitration pursuant to Article IX Paragraph 14. If
the adjustment payable to DDS is greater than ****, then the cost to DDS
for the inspection and if applicable the arbitration shall be paid by
IOMED. In addition, IOMED shall pay interest to DDS at **** (applicable
as of the date on which payment should have been made pursuant to Article
IV Paragraph 3.3.), from the date on which payment should have been made
pursuant to Article IV Paragraph 3.3. until the date of payment.
<PAGE> 13
ARTICLE V. REGISTRATION OF THE PRODUCTS
1. During the TERM and the ADDITIONAL TERM, IOMED shall be responsible for
filing and prosecuting all NDAs and other applications for regulatory
approvals. IOMED or its sublicensees shall file the NDAs with the FDA and
will use its reasonable efforts in prosecuting said NDA to approval.
IOMED shall thereafter maintain at its own cost the NDAs with the FDA for
the term-of this Agreement. Subject to IOMED'S reasonable discretion
IOMED hereby agrees to provide to DDS at DDS's own cost access to such
NDAs as DDS reasonably requests. **** For the avoidance of doubt, the
Parties agree that all information furnished to DDS pursuant to this
Paragraph shall constitute CONFIDENTIAL INFORMATION for the purposes of
this Agreement.
2. It is hereby acknowledged that there are inherent uncertainties involved
in the development and registration of pharmaceutical products with the
FDA or any other regulatory body in the TERRITORY insofar as obtaining
approval is concerned and such uncertainties form part of the business
risk involved in undertaking the form of commercial collaboration as set
forth in this Agreement.
ARTICLE VI: REPRESENTATIONS, WARRANTIES
1. DDS represents to IOMED the following:
1.1. DDS is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification, and
is in compliance with all applicable laws, rules, regulations or
orders relating to its business and assets;
<PAGE> 14
1.2. DDS has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered by DDS and
constitutes the legal and valid obligations of DDS and is
enforceable against DDS in accordance with its terms and the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby and will not violate or result in a
default under or creation of lien or encumbrance under DDS's
certificate of incorporation, by-laws or other organic documents,
any material agreement or instrument binding upon or affecting DDS
or its properties or assets or any applicable laws, rules,
regulations or orders affecting DDS or its properties or assets;
1.3. DDS is not in material default of its charter or by-laws, any
applicable material laws or regulations or any material contract or
agreement binding upon or affecting it or its properties or assets
and the execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not result in any such
violation; and
1.4. ****.
2. IOMED represents to DDS the following:
2.1. IOMED is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification, and
IOMED is in compliance with all applicable laws, rules, regulations
or orders relating to its business and assets;
<PAGE> 15
2.2. IOMED has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered and constitutes
the legal and valid obligations of IOMED and is enforceable against
IOMED in accordance with its terms; and the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby will not violate or result in a default under or creation of
lien or encumbrance under IOMED's certificate of incorporation,
by-laws or other organic documents any material agreement or
instrument binding upon or affecting IOMED or its properties or
assets or any applicable laws, rules, regulations or orders
affecting IOMED or its properties or assets;
2.3. IOMED is not in default of its charter or by-laws, any applicable
laws or regulations or any material contract or agreement binding
upon or affecting it or its properties or assets and the execution,
delivery and performance of this letter agreement and the
transactions contemplated hereby will not result in any such
violation;
2.4. IOMED represents and warrants that it has not granted any option,
license, right or interest to any third party which would conflict
with the terms of this Agreement.
2.5. ****.
<PAGE> 16
ARTICLE VII: PATENTS
1. Title to all inventions and other DDS IONTOPHORETIC PATENT RIGHTS
created or developed solely by employees of DDS shall be owned by DDS.
Title to all inventions and other intellectual property created or
developed solely by IOMED employees shall be owned by IOMED. The Parties
agree that such inventions invented after the EFFECTIVE DATE shall not
result in any additional royalties being paid by IOMED pursuant to
Article IV or extend the TERM of this Agreement.
2. The Parties agree that the following provisions of Article VII Paragraph
2, shall apply as regards the filing, prosecution and maintenance of the
DDS IONTOPHORETIC PATENT RIGHTS:
2.1. IOMED at its expense shall be responsible to secure the grant of the DDS
IONTOPHORETIC PATENT RIGHTS and to file patent applications covering any
improvements, to prosecute and defend such applications against
independent third party oppositions; and upon grant of any letters patent
covering such invention, to maintain such letters patent in force. IOMED
at its expense shall have the right to control such filing, prosecution,
defence and maintenance; provided however DDS shall be provided with
copies of all substantive documents relating to such filing, prosecution
and defence and maintenance; provided however DDS shall be provided with
copies of all substantive documents relating to such filing, prosecution
and defence in sufficient time to review such documents and comment
thereon prior to any deadline for filing the same, if desired by DDS.
IOMED shall be entitled to determine the patent filing strategy. DDS
shall execute all documents, forms and declarations and otherwise
co-operate fully to enable IOMED to seek and obtain the broadest
protection afforded by the patent laws of the countries within the
TERRITORY, whether during the TERM of this Agreement or thereafter. For
the avoidance of doubt, the Parties agree that all information furnished
to DDS pursuant to this Paragraph shall constitute CONFIDENTIAL
INFORMATION for the purposes of this Agreement.
2.2. If IOMED does not intend to make an application for patents or continue
prosecution of a pending application in respect of the DDS IONTOPHORETIC
PATENT RIGHTS in any or some (specifying which) countries of the
TERRITORY, or fails within six (6) months of disclosure under Article
VII Paragraph 2.1, to make application in one or more countries of the
TERRITORY, DDS shall have the option and the right to apply for patents
or other intellectual property protection in respect thereof (in the
countries where IOMED has not applied).
<PAGE> 17
If IOMED does not intend to continue prosecution of a pending application
in any country of the TERRITORY, IOMED shall promptly inform DDS of such
a decision and no later than in sufficient time for DDS to continue such
prosecution. For the avoidance of doubt, the Parties agree that such
patents as are obtained by DDS pursuant to this Paragraph shall
constitute DDS IONTOPHORETIC PATENT RIGHTS.
2.3. DDS shall use its commercially reasonable endeavors to ensure that the
inventors of the DDS IONTOPHORETIC PATENT RIGHTS shall be reasonably
available to IOMED to deal with queries, and complete and execute
documents, relating to the filing, prosecution and defense of the DDS
IONTOPHORETIC PATENT RIGHTS.
2.4. IOMED shall not abandon an DDS IONTOPHORETIC PATENT RIGHT without the
prior written consent of DDS, which shall not be unreasonably withheld.
In the event that the Parties agree that IOMED may abandon such an DDS
IONTOPHORETIC PATENT RIGHT, DDS shall have the right to take over the
prosecution and maintenance of such DDS IONTOPHORETIC PATENT RIGHTS,
which rights shall no longer form a part of and be covered by the
licenses granted by DDS pursuant to this Agreement.
3. IOMED and DDS shall promptly inform the other in writing of any alleged
infringement of which it shall become aware by a third party of any
patents within the DDS IONTOPHORETIC PATENT RIGHTS and provide such other
with any available evidence of infringement.
4. During the TERM and the ADDITIONAL TERM, IOMED shall have the right to
pursue at its own expense and for its own benefit any such infringements
of the DDS IONTOPHORETIC PATENT RIGHTS and/or the IOMED PATENT RIGHTS.
DDS shall agree to be named as a necessary party in an action brought by
and fully financed by IOMED and will reasonably co-operate with such
action. Any expenses borne by DDS shall be reimbursed by IOMED. Any
recovery remaining after the deduction by IOMED of the reasonable expenses
(including attorney's fees and expenses) incurred in relation to such an
infringement proceeding shall constitute NET REVENUES for the purpose of
this Agreement. Should IOMED decide not to pursue such infringers of the
DDS IONTOPHORETIC PATENT RIGHTS, DDS may do so at its expense and for its
own benefit, and IOMED will reasonably co-operate with such action. Any
expenses borne by IOMED in co-operating with such action shall be
reimbursed by DDS.
<PAGE> 18
ARTICLE VIII: TERM AND TERMINATION
1. This Agreement is concluded for a period commencing as of the date of this
Agreement and shall expire on a country by country basis fifteen (15)
years starting from the EFFECTIVE DATE, or for the life of the last to
expire patent included in the ELAN IONTOPHORETIC PATENT RIGHTS and the DDS
IONTOPHORETIC PATENT RIGHTS which are used in the exploitation of the
PRODUCTS, whichever is longer ("the TERM"). From and after the tenth year
of the TERM, in the event that IOMED reasonably believes that there are
DDS IONTOPHORETIC PATENT RIGHT(S) that are not used in connection with the
exploitation of the PRODUCTS, IOMED shall provide written notice thereof
to DDS, setting forth in reasonable detail its reasons therefor. DDS and
IOMED shall thereupon each in good faith attempt to make a joint
determination of whether IOMED's conclusion is correct or if such DDS
IONTOPHORETIC PATENT RIGHT(S) are in fact used in connection with such
exploitation; if the Parties are unable to agree upon such joint
determination within ninety (90) days of such notice from IOMED, either
party shall have the right to have such matter arbitrated. Such
arbitration shall be conducted before an independent experienced patent
attorney reasonably selected by the Parties, or on such other basis as
shall be mutually reasonably agreeable, pursuant to the provisions of
Article IX Paragraph 14.
2. In addition, for a period of five years commencing upon the expiration of
the TERM ("the ADDITIONAL TERM"), the licenses granted by DDS pursuant to
Article II shall continue; provided, that the royalties payable during the
ADDITIONAL TERM to DDS referred to in Article IV shall be fifty per cent
(50% of the amount otherwise payable during the term.
3. In addition to the rights of early or premature termination provided for
elsewhere in this Agreement, in the event that any of the terms or
provisions hereof are incurably breached by either Party, the
non-breaching Party may immediately terminate this Agreement by written
notice. An incurable breach shall be committed when either Party is
dissolved, liquidated, discontinued, becomes insolvent, or when any
proceeding is filed or commenced by either Party under bankruptcy,
insolvency or debtor relief laws (and not dismissed within ninety (90)
days). Subject to the other provisions of this Agreement, in the event of
any other material breach, the non-breaching Party may terminate this
Agreement by the giving of written notice to the breaching Party that this
Agreement will terminate on the ninetieth (90th) day from notice unless
cure is sooner effected.
<PAGE> 19
If the breaching Party has proposed a course of action to rectify the
breach and is acting in good faith to rectify same but has not cured the
breach by the ninetieth (90th) day, the said period shall be extended by
such period as is reasonably necessary to permit the breach to be
rectified. In the event that a Party is entitled to terminate this
Agreement, such Party shall also be entitled to terminate the ELAN
AGREEMENT. Furthermore in the event that a Party is entitled to terminate
the ELAN AGREEMENT, such Party shall also be entitled to terminate this
Agreement. In the event that the breaching Party disputes the validity of
the right of the non-breaching Party to terminate the Agreement pursuant
to this Paragraph, either Party may refer the dispute to an arbitrator
pursuant to the provisions of Article IX Paragraph 14. Pending the
determination of the arbitrator, neither Party may regard the Agreement as
having been terminated an in particular shall not allege or claim to any
third party that the Agreement has been terminated pursuant to this
Paragraph.
4 . In the event that IOMED elects to proceed against DDS for damages in
circumstances where IOMED would have been entitled to terminate the
Agreement pursuant to Article IX Paragraph 3 and IOMED obtains a final
order for damages from a court of competent jurisdiction which is not
subject of further appeal, IOMED may offset the said order for damages
against sums other due to DDS pursuant to Article IV until recovery of the
said judgment.
5. Upon termination of the Agreement:
5.1. any sums that were due from IOMED to DDS prior to the exercise of
the right to terminate this Agreement, shall be paid in full within
sixty (60) days of terminate of this Agreement.
5.2. all confidentiality provisions (other than the obligations set out
in Article IX Paragraph 1.1. as they affect DDS in the event of
termination of this Agreement by DDS pursuant to Article VIII
Paragraph 3 due to the breach by IOMED) set out in this Agreement
shall remain in full force and effect for a period of five (5)
years;
5.3. all responsibilities and warranties shall insofar are appropriate
remain in full force and effect;
5.4. the rights of inspection and audit shall continue in force for the
period referred to in the relevant provisions of this Agreement;
<PAGE> 20
5.5. termination of this Agreement for any reason shall not release any
Party hereto from any liability which, at the time of such
termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude
either Party from pursuing all rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this
Agreement;
5.6. in the event of termination of this Agreement by DDS or IOMED
pursuant to Article VIII Paragraph 3. IOMED and DDS shall promptly
return to the other Party all CONFIDENTIAL INFORMATION received from
the other Party (except one copy of which may be retained for
archival purposes);
5.7. in the event this Agreement is terminated by DDS or IOMED pursuant
to Article VIII Paragraph 3, IOMED and its sublicensees shall have
the right for a period of **** from termination to sell or otherwise
dispose of the stock of any PRODUCTS then on hand, which such sale
shall be subject to Article IV and the other applicable terms of
this Agreement. The foregoing provisions of this Paragraph shall be
subject to the provisions of such agreement or agreements as DDS and
one or more sublicensees conclude pursuant to Article II Paragraph
2.4;
5.8 In the event this Agreement is terminated by DDS or IOMED pursuant
to Article VIII Paragraph 3, the licenses granted by DDS to IOMED
shall terminate and DDS shall thenceforth be entitled to exploit the
DDS IONTOPHORETIC PATENT RIGHTS together with any improvements made
by IOMED to the DDS IONTOPHORETIC PATENT RIGHTS; provided that the
foregoing provision shall be subject to the provisions of Article II
Paragraph 2.4 and any agreements entered into pursuant to the said
Paragraph; and
5.9. Article I, Article II Paragraph 2.4, Article VI, Article VII
Paragraph 1, Article VIII and Article IX (other than Paragraph 3
thereof) shall survive the termination or expiration of this
Agreement for any reason.
<PAGE> 21
ARTICLE IX: SUNDRY CLAUSES
1. Secrecy
1.1. Each of the Parties agrees, during the TERM and the ADDITIONAL TERM to
hold in confidence and not disclose to any third parties, including any of
the OFFERING PARTIES, except to the extent required by applicable law or
administrative or judicial process, the DDS IONTOPHORETIC PATENT RIGHTS or
the contents or nature. thereof provided that the foregoing covenant shall
not be applicable to DDS in the event that IOMED (i) abandons or (ii)
ceases to develop or commercialize (and provides notice thereof to DDS)
any such DDS IONTOPHORETIC PATENT RIGHTS and DDS determines subsequently
to develop products or technologies based an such DDS IONTOPHORETIC PATENT
RIGHTS, irrespective of whether it is reduced to patent. Each law may
make such disclosure to its directors, officers and agents and, in the
case of IOMED, its potential and actual sublicensees and other parties to
whom such disclosure is appropriate to enable IOMED to conduct its regular
business (each of whom shall be bound by IOMED's customary confidential
disclosure agreements), who shall be informed of such confidentiality
obligation and for whose breach the disclosing party shall be responsible.
1.2. Subject to the provisions of Paragraph 1.1., any information, whether
written or oral (oral information shall be reduced to writing within one
month by the Party giving the oral information and the written form shall
be furnished to the other Party) pertaining to the DDS IONTOPHORETIC
PATENT RIGHTS or the PRODUCTS that has been or will be communicated or
delivered by DDS to IOMED, and any information from time to time
communicated or delivered by IOMED to DDS, including, without limitation,
trade secrets, business methods, and cost, supplier, manufacturing and
customer information, shall be treated by IOMED and DDS, respectively, as
CONFIDENTIAL INFORMATION, and shall not be disclosed or revealed to any
third party whatsoever or used in any manner except as expressly provided
for herein; provided, however, that such CONFIDENTIAL, INFORMATION shall
not be subject to the restrictions and prohibitions set forth in this
section to the extent that such CONFIDENTIAL INFORMATION:
1.2.1. is available to the public in public literature or otherwise, or
after disclosure by one Party to the other becomes public
knowledge through no default of the Party receiving such
information; or
<PAGE> 22
1.2.2. was known to the Party receiving such information prior to the
receipt of such information by such Party, whether received before
or after the date of this Agreement; or
1.2.3. is obtained by the Party receiving such information from a third
party not subject to a requirement of confidentiality with respect
to such information; or
1.2.4. is required to be disclosed pursuant to: (A) any order of a court
having jurisdiction and power to order such information to be
released or made public; or (B) other requirement of law, provided
that if the receiving Party becomes legally required to disclose
any CONFIDENTIAL INFORMATION, the receiving Party shall give the
disclosing Party prompt notice of such fact so that the disclosing
Party may obtain a protective order or other appropriate remedy
concerning any such disclosure. The receiving Party shall fully
cooperate with the disclosing Party in connection with the
disclosing Party's efforts to obtain any such order or other
remedy. If any such order or other remedy does not fully preclude
disclosure, the receiving Party shall make such disclosure only to
the extent that such disclosure is legally required; or
1.2.5. is independently developed by or for the Party by persons not
having access to the CONFIDENTIAL INFORMATION of the other Party.
1.3. Each Party shall take all such precautions as it normally takes with its
own CONFIDENTIAL INFORMATION to prevent any improper disclosure of such
CONFIDENTIAL INFORMATION to any third party, provided, however, that such
CONFIDENTIAL INFORMATION may be disclosed within the limits required to
obtain any authorization from the FDA or any other United States of
America or foreign governmental or regulatory agency or, with the prior
written consent of the other Party, which shall not be unreasonably
withheld, or as may otherwise be required in connection with the purposes
of this Agreement.
1.4. IOMED agrees that it will not use, directly or indirectly, any DDS
IONTOPHORETIC PATENT RIGHTS, or other CONFIDENTIAL INFORMATION disclosed
to IOMED or obtained from DDS pursuant to this Agreement, other than as
expressly provided herein. DDS agrees that it will not use, directly or
indirectly, any IOMED KNOW-HOW, IOMED PATENT RIGHTS or other CONFIDENTIAL
INFORMATION disclosed to DDS or obtained from IOMED pursuant to this
Agreement, other than as expressly provided herein.
<PAGE> 23
1.5. IOMED and DDS will not publicize the existence of this Agreement in any
way without the prior written consent of the other subject to the
disclosure requirements of applicable laws and regulations. In the went
that either Party wishes to make an announcement concerning the Agreement,
that Party will seek the consent of the other Party, The terms of any such
announcement be agreed in good faith.
2. Assignments/Subcontracting
IOMED may not assign (other than by operation of law in the event of an
acquisition of IOMED. or a merger or similar transaction subject to the
provisions as set forth in Article IX Paragraph 3) the rights licensed by
DDS under Article II without the prior written consent of DDS , which may
be withheld in DDS's sole discretion. DDS shall be entitled to assign its
rights and obligations to an AFFILIATE. DDS may not assign to an
unaffiliated third party (other than by operation of law in the event of
an acquisition of DDS, or a merger or similar transaction) its rights
under this Agreement without the prior written consent of IOMED, which may
be withheld in IOMED's sole discretion.
3. Certain Changes of Control.
In the event that an OFFERING PARTY makes or signifies its intention of
make a bona fide offer which would result in such a party owning, directly
or indirectly, more than fifteen per cent (15%) of IOMED's voting stock,
on a fully-diluted basis, or otherwise controlling the IOMED's Board of
Directors, or otherwise obtains substantial contractual rights pursuant to
an agreement with IOMED to the DDS IONTOPHORETIC PATENT RIGHTS (as
reasonably determined by DDS) (each, a "Control Transaction"), IOMED shall
(x) not accept such offer until it shall have complied with the remaining
provisions of this Paragraph without DDS's consent (in its sole
discretion) and (y) advise the appropriate OFFERING PARTY that, in lieu of
IOMED accepting such offer, such OFFERING PARTY should make a separate
offer with respect to that portion of IOMED"s business that relates to the
FIELD, and not to the remaining potion of IOMED's business. DDS and/or
ELAN shall have a period of thirty (30) days to conduct appropriate due
diligence and to determine whether it desires to match an offer made by an
OFFERING PARTY with respect to that portion of IOMED's business that
relates to the FIELD, (including the same economic, payment and other
terms); it being understood that IOMED shall make available to DDS and/or
ELAN reasonable and sufficient information to enable DDS and/or ELAN to
conduct such due diligence.
In the event that DDS and/or ELAN determines to make such offer, IOMED
shall accept such offer and expeditiously consummate such transaction with
DDS and/or ELAN. Notwithstanding the foregoing, in the event that an
OFFERING PARTY consummates a Control Transaction without the consent of
the IOMED's Board of Directors (as such Board is comprised at the time
such transaction is first publicly announced or commenced)(including
without limitation, in connection with a tender offer or offers or proxy
solicitation), DDS shall have the right in its sole discretion, to
terminate the licences granted by DDS pursuant to this Agreement, without
payment or penalty to IOMED.
<PAGE> 24
****.
4. Parties bound
This Agreement shall be binding upon and enure for the benefit of Parties
hereto, their successors and permitted assigns.
5. Severability
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto, (i) such provision will be deemed amended
to conform to applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such agreement
or such earlier date as the Parties may agree, and (ii) the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not be impaired or affected in any way.
6. Force Majeure
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
causes beyond its reasonable control, including, without limitation, acts
of God, fires, strikes, acts of war, or intervention of a Government
Authority, non availability of raw materials, but any such delay or
failure shall be remedied by such Party as soon as practicable.
7. Relationship of the Parties
Nothing contained in this Agreement is intended or is to be construed to
constitute DDS and IOMED as partners or joint venturers or either Party as
an employee of the other. Neither Party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf
of or in the name of the other Party or to bind the other Party to any
contact, agreement or undertaking with any third party.
<PAGE> 25
8. Amendments
No amendment, modification or addition hereto shall be effective or
binding an either Party unless set forth in writing and executed by a duly
authorized representative of both Parties.
9. Waiver
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of any
other right arising under this Agreement.
10. Headings
The section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the Parties.
Save as otherwise provided herein, references to articles, paragraphs,
clauses and appendices are to those contained in this Agreement.
11. No effect on other agreements
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement.
12. Applicable Law
This Agreement (a) shall be governed by and construed in accordance with
the internal laws of the State of New York, without regard to principles
of conflicts of laws, and subject to those provisions where the Parties
have expressly earned to submit a dispute to arbitration, each party
consents to the exclusive jurisdiction of any Federal or state court
sitting in the County, City and State of New York over any dispute arising
from this Agreement.
<PAGE> 26
13. Notice
13.1. Any notice to be given under this Agreement shall be sent in writing
in English by registered airmail or telefaxed to:
DDS at
Drug Delivery Systems, Inc.
1300 Gould Drive,
Gainesville,
Georgia 30504
United States of America
Attention: President
Telephone: 770 534 8239
Telefax: 770 534 8247
IOMED at
IOMED, Inc.
3385 West 1820 South,
Salt Lake City, UT 84104,
United States of America
Attention: President and Chief Executive Officer
Telephone: 801 975 1191
Telefax: 801 972 9072
or to such other address(es) and telefax numbers as may from time
-to time be notified by either Party to the other hereunder.
13.2. Any notice sent by mail shall be deemed to have been delivered
within seven (7) working days after dispatch and any notice sent by
telefax shall be deemed to have been delivered within twenty four
(24) hours of the time of the dispatch. Notice of change of address
shall be effective upon receipt; provided that such date of receipt
must be a business day for the Party to whom the notice is
delivered.
<PAGE> 27
14. Arbitration
Any dispute under this Agreement which is not settled by mutual consent
and which is the subject of an arbitration clause shall be finally settled
by binding arbitration, conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by an arbitrator
appointed in accordance with said rules. The arbitration shall be held in
New York, New York and the arbitrator shall be to the extent practicable
experienced as to the subject matter of the dispute such as an independent
expert in pharmaceutical product development and marketing (including
clinical development and regulatory affairs) or an independent patent
attorney as the case may be. The arbitrator shall determine what
discovery will be permitted, consistent with the goal of limiting the cost
and time which the Parties must expend for discovery, provided the
arbitrator shall permit such discovery as he deems necessary to permit an
equitable resolution of the dispute. Any written evidence originally in a
language other than English shall be submitted in English translation
accompanied by the original or a true copy thereof. The costs of the
arbitration, including administrative and arbitrator's fees, shall be
shared equally by the Parties and each Party shall bear its own costs and
attorney's and witness' fees incurred in connection with the arbitration;
provided that the prevailing party may be awarded the reasonable costs and
fees incurred in connection with the arbitration at the discretion of the
arbitrator. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within thirty (30) days
following the final decision of the arbitrators or such other reasonable
period as the arbitrators determine in a written opinion. Any arbitration
subject to this Paragraph 14 shall be completed within one (1) year from
the filing of notice of a request for such arbitration. The arbitration
proceedings and the decision shall not be made public without the joint
consent of the Parties and each Party shall maintain the confidentiality
of such proceedings and decision unless (a) otherwise permitted by the
other Party or (b) otherwise required by the applicable law in which case
the Provisions of Article IX Paragraph 1.2.4. shall be applicable. The
Parties agree that the decision shall be the sole, exclusive and binding
remedy between them regarding any and all disputes, controversies, claims
and counterclaims presented to the arbitrators. Application may be made to
any court having jurisdiction over the Party (or its assets) against whom
the decision is rendered for a judicial recognition of the decision and an
order of enforcement.
<PAGE> 28
15. Withholding
Any income or other taxes which IOMED is required by law to pay or
withhold on behalf of DDS with respect to royalties and any other moneys
payable to DDS under this Agreement shall be deducted from the amount of
such royalties and moneys due. IOMED shall furnish DDS with proof of such
payments. Any such tax required to be paid or withheld shall be an
expense of and borne solely by DDS. IOMED shall promptly provide DDS with
a certificate or other documentary evidence to enable DDS to support a
claim for a refund or a foreign tax credit with respect to any such tax so
withheld or deducted by IOMED. Both Parties will reasonably cooperate in
completing and filing documents required under the provisions of any
applicable tax treaty or under any other applicable law, in order to
enable IOMED to make such payments to DDS without any deduction or
withholding.
16. Indemnity
16.1. DDS shall indemnify, defend and hold harmless IOMED from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorneys' fees) to which IOMED is or may become subject
insofar as they arise out of or are alleged or claimed to arise out of any
breach by DDS of any of its obligations under this Agreement or warranties
of DDS.
16.2. IOMED shall indemnify, defend and hold harmless DDS from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorney's fees) to which DDS is or may become subject insofar
as they arise out of or are alleged or claimed to arise out of any
breach by IOMED of any of its obligations under this Agreement or
warranties of IOMED. IOMED shall assume the sole and entire
responsibility and shall indemnify and save harmless DDS from any and all
claims, liabilities, expenses, including reasonable attorney's fees,
responsibilities and damages by reason of any claim, proceedings, action,
liability or injury arising out of any defect in the PRODUCTS, including
the manufacture, transport, packaging, storage, handling, distribution,
marketing or sale of the PRODUCTS by IOMED.
16.3. As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall.
16.3.1. fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
16.3.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
16.3.3. assist in the investigation and defence of such claim or
proceeding;
16.3.4. not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which
consent shall not be unreasonably withheld; and
16.3.5. take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
<PAGE> 29
16.4. Notwithstanding anything to the contrary in this Agreement, DDS and IOMED
shall not be liable to the other by reason of any representation or
warranty, condition or other term or any duty of common law, or under the
express terms of this Agreement, for any consequential or incidental loss
or damage (whether for loss of profit or otherwise) and whether occasioned
by the negligence of the respective Parties, their employees or agents or
otherwise.
17. Entire Agreement
17.1. This Agreement including its Appendices, together with the ELAN
AGREEMENT, the Note Purchase and Warrant Agreement and Registration Rights
Agreement being entered into between Elan International Services Limited,
Elan International Management Limited and IOMED, the Promissory Note and
Secured Promissory Note being issued by IOMED to Elan International
Management Limited and the further documents referred to therein, each of
which are being executed of even date herewith, set forth the entire
agreement and understanding of the Parties with respect to the subject
matter hereof, and supersedes all prior discussions, agreements and
writings in relating thereto, including the letter of agreement of 31st
March 1997.
17.2. The Parties agree that the obligations of IOMED to provide access to the
NDAs pursuant to Article V Paragraph 1 to DDS shall be discharged if such
access is provided to ELAN pursuant to the equivalent provisions of the
ELAN AGREEMENT.
17.3. The Parties agree that the obligations of IOMED to furnish the
documentation and information to DDS pursuant to the provisions of Article
II Paragraph 7, shall be discharged by furnishing such documentation to
ELAN pursuant to the equivalent provisions of the ELAN AGREEMENT.
<PAGE> 30
17.4. The Parties agree that the obligations of IOMED to obtain the prior
written consent of IOMED pursuant to Article II Paragraphs 2.1. or 2.2.
shall be satisfied by obtaining the consent of ELAN pursuant to the
equivalent provisions of the ELAN AGREEMENT.
17.5. The Parties agree that DDS's right of access and audit in any particular
calendar year pursuant to Article IV Paragraph 3.4. shall be exhausted if
such rights are exercised by ELAN pursuant to the equivalent provisions of
the ELAN AGREEMENT; provided that nothing in this Paragraph shall limit or
restrict DDS's rights to seek an adjustment to the royalties payable,
whether by agreement between the Parties or pursuant to arbitration.
17.6. The Parties agree that the obligations of IOMED to obtain the prior
written consent of DDS pursuant to Article IX Paragraph 3 shall be
satisfied by obtaining the consent of ELAN pursuant to the equivalent
provisions of the ELAN AGREEMENT. In addition the Parties agree that the
right of DDS to exercise its rights to conduct appropriate due diligence
and to make an offer as envisaged by Article IX Paragraph 3 shall be
discharged by the exercise of such rights by ELAN pursuant to the
equivalent provisions of the ELAN AGREEMENT. In the event that an
OFFERING PARTY consummates a Control Transaction (as defined in Article IX
Paragraph 3) without the consent of the IOMED's Board of Directors (as
such Board is comprised at the time such transaction is first publicly
announced or commenced) (including without limitation, in connection with
a tender offer or offers or proxy solicitation), and in the event that
ELAN determines at its sole discretion that it shall not terminate the
licenses granted by ELAN pursuant to the ELAN AGREEMENT, DDS shall be
deemed to have elected not to have terminated the licenses granted by DDS
pursuant to this Agreement.
18. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed an original and which together shall constitute one instrument.
<PAGE> 31
IN WITNESS WHEREOF the Parties hereto have executed this Agreement in duplicate.
Signed by IOMED on _____ April, 1997.
By: ________________________________
Name: ______________________________
Title: _____________________________
Executed by DDS ______ April, 1997.
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE> 32
[ELAN LOGO]
APPENDIX A
DDS IONTOPHORETIC PATENT RIGHTS
<PAGE> 33
PROPRIETARY & CONFIDENTIAL INFORMATION
SUMMARY OF DDS'S PENDING PATENT APPLICATIONS
FOR IONTOPHORETIC TECHNOLOGY
****
<PAGE> 34
PROPRIETARY & CONFIDENTIAL INFORMATION
****
*indicates claims have been allowed
Europe(4) indicates the designation of the following countries: Germany,
France, Great Britain and Italy
Europe(10) = Europe(4) + Austria, Belgium, Switzerland/Liechtenstein,
Luxembourg, Netherlands & Sweden
Europe(12) = Europe(10) + Greece & Spain
Europe(13) = Europe(12) + Denmark, Portugal & Monaco
Europe(15) = Europe(13) + Ireland
<> This file is the subject of an opposition proceeding in the Japanese Patent
Office. The opposer is Hiroyuki Shigero, and individual. We filed our answer
and supporting documents to the opposition in November 1995 and await further
action from the Japanese Patent Office.
<PAGE> 35
DOCKET FAMILY: P1
[ELAN LOGO] ART = PANODERM
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 31850/84 563137
64.P-1.AU August 13, 1994 October 2, 1987
- ----------------------------------------------------------------------------------------------------------
CANADA DDS 461304 1224993
84.P-1.CA August 17, 1984 August 4, 1987
- ----------------------------------------------------------------------------------------------------------
EPO DDS 84109840.3 147524
84.P-1.EP(10) August 17, 1984 July 10, 1985 August 8, 1989
- ----------------------------------------------------------------------------------------------------------
JAPAN DDS 171396/1984 1764538
84.P-1.JP August 17, 1984 June 9, 1992 May 20, 1993
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 4970/84 67091
84.P-1.KR August 17, 1984 June 15, 1993 June 15, 1993
- ----------------------------------------------------------------------------------------------------------
MEXICO DDS 202435 158181
84.P-1.MX August 17, 1984 January 13, 1989
- ----------------------------------------------------------------------------------------------------------
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation PANODERM ISSUED PATENTS 3:39:06 PM
</TABLE>
<PAGE> 36
DOCKET FAMILY: P-1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAIWAN DDS 73113316 30312
84.P-1.71 August 10, 1984 September 11, 1988 September 11, 1988
- ----------------------------------------------------------------------------------------------------------
UNITED STATES DDS 524,252 4,557,723
83.P-1.US August 18, 1983 December 10, 1985
- ----------------------------------------------------------------------------------------------------------
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Lichtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation PANODERM ISSUED PATENTS 2:39:08 PM
</TABLE>
<PAGE> 37
DOCKET FAMILY: P-2
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 660,192 4,862,031
84.P-2.US October 12, 1984 November 11, 1986
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 822,518 4,713,050
86.P-2 C.US October 24, 1986 December 15, 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 38
DOCKET FAMILY: P-3
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 38352/85 580585
65.P-3.AU January 17, 1985 July 17, 1986 January 17, 1985
- ------------------------------------------------------------------------------------------------------
CANADA DDS 474498 1226777
85.P-3.CA February 15, 1985 September 15, 1985
- ------------------------------------------------------------------------------------------------------
EPO DDS 85112811.4 178,601 178601
65.P-3.EP(10) October 17, 1986 April 23, 1986 August 11, 1983
- ------------------------------------------------------------------------------------------------------
ITALY DDS 47885A/85 1186798
85.P-3.IT February 14, 1985
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 219971/1985 1825721
85.P-3.JP October 2, 1985 June 4, 1983 March 16, 1994
- ------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 7418/85 73321
65.P-3.KR October 5, 1985 January 5, 1994 May 3, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
PANODERM ISSUED PATENTS
<PAGE> 39
DOCKET FAMILY: P-3
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO DDS 204285 161423
85.P-3.MX February 11, 1985 September 24, 1990
- -------------------------------------------------------------------------------------------------------
TAIWAN DDS 75201891 33845
85.P-3.TI February 12, 1985 November 18, 1988 November 18, 1988
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 778,183 4,708,716
85.P-3.US August 16, 1985 November 24, 1987
- -------------------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Lichtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 40
DOCKET FAMILY: P-4
[ELAN LOGO]
ART = PANODERM
*
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER OF
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
AUSTRALIA DDS 60222/86 597890
86.P-4.AU July 16, 1988 June 14, 1990 July 16, 1988
- --------------------------------------------------------------------------------------------
CANADA DDS 614514 1287665
86.P-4.CA July 23, 1986 August 13, 1991
- --------------------------------------------------------------------------------------------
EPO DDS 86110164.0 240593
86.P-4.EP(10) July 24, 1998 October 14, 1987 May 10, 1993
- --------------------------------------------------------------------------------------------
SPAIN DDS 8801519 6801519
86.P-4.ES May 18, 1983 June 5, 1989
- --------------------------------------------------------------------------------------------
JAPAN DDS 186,721/1988 1921999
86.P-4.JP August 8, 1986 April 7, 1995
- --------------------------------------------------------------------------------------------
SOUTH KOREA DDS 6303/86 100,195
86.P-4.KR July 31, 1986 December 27, 1995 June 3, 1996
- --------------------------------------------------------------------------------------------
</TABLE>
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 41
DOCKET FAMILY: P-4
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
MEXICO DDS 3577 172928
86.P-4.MX August 20, 1996 January 24, 1994
- --------------------------------------------------------------------------------------------
TAIWAN DDS 79203115 58937
80.P-4.TI July 16,1985 August 21, 1990 August 21, 1990
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 839,050 4,840,669
86.P-4C.US March 12, 1988 February 3, 1987
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 196,663 4,919,649
86.P-4C2.US May 20, 1988 April 24, 1990
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 196,664 4,921,475
86.P-4C3.US May 20, 19$$ May 1, 1990
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 426,476 5,087,240
86.P-4C5.US October 30, 1989 February 11, 1992
- --------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Lischtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 42
DOCKET FAMILY: P-5
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 44943/85 591672
85.P-5.AU June 10, 1985 June 10, 1985
- ------------------------------------------------------------------------------------------------------
CANADA DDS 509791 1279542
86.P-5.CA May 22, 1984 January 29, 1991
- ------------------------------------------------------------------------------------------------------
EPO DDS 85903470.4 225672
85.P-5.EP(10) June 10, 1985 September 2, 1992
- ------------------------------------------------------------------------------------------------------
SPAIN DDS 8801520 8801520
88.P-5.ES May 16, 1985 May 3, 1989
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 502839/1985(S60) 2016549
85.P-5.JP June 10, 1985 February 19, 1995
- ------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 700091/87 27793
87.P-5.KR February 2, 1987 November 28, 1985 April 20, 1989
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 43
DOCKET FAMILY: P-5
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO DDS 2747 169673
86.P-5.MX June 5, 1989 July 19, 1993
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 79202103 58100
87 P-5.TI January 12, 1987 October 11, 1990 October 11, 1990
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 711,589 5,135,479
91.P-5 C3.US June 5, 1991 August 4, 1992
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 711,590 5,224,928
91.P-5 C4.US June 5, 1991 July 5, 1993
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 08/381,141 5,591,123
91.P-5 C6.US January 10, 1995 January 7, 1997
P-1
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 44
Docket Family: P-6
Art = Pandoderm
[ELAN LOGO]
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 44944/85 582764
85.P-6 .AU June 10, 1985 June 10, 1985
- -------------------------------------------------------------------------------------------------------
CANADA DDS 509801 1277882
86.P-6 .CA May 23, 1986 December 10, 1990
- -------------------------------------------------------------------------------------------------------
EPO DDS 85903469.6 225,871 225871
85.P-6 .EP(10) June 10, 1985 June 24, 1987 March 14, 1990
- -------------------------------------------------------------------------------------------------------
JAPAN DDS 502861/1985 1802335
85.P-8 .JP June 10, 1985 October 13, 1982 November 26, 1993
- -------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 87700089 26954
88.P-6 .KR September 12, 1988 September 12, 1988
- -------------------------------------------------------------------------------------------------------
MEXICO DDS 2748 168830
86.P-6 .MX June 9, 1986 June 2, 1993
- -------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 45
Docket Family: P-6
<TABLE>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTS FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAIWAN DDS 76100076 30926
87.P-6 .TI January 12, 1987 December 11, 1988
UNITED STATES DDS 000,554 4,808,152
87.P-6 .US DDS January 6, 1987 February 28, 1989
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy
Luxembourg, Netherlands, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 46
Docket Family: P-7
[ELAN LOGO]
Art=Panoderm
****
<TABLE>
<CAPTION>
Control Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Census Date
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 66193/88 591738
86.P-7 .AU December 8, 1988 December 8, 1986
- -------------------------------------------------------------------------------------------------------
AUSTRALIA DDS 16550/88 618734
88.P-7 DIV.AU May 24, 1988 May 24, 1988
- -------------------------------------------------------------------------------------------------------
AUSTRALIA DDS 65713/81 533228
91.P-7 DIV2.AU October 10, 1991 November 25, 1992
- -------------------------------------------------------------------------------------------------------
CANADA DDS 524873 1267340
85.P-7 .CA December 10, 1985 April 3, 1990
- -------------------------------------------------------------------------------------------------------
CANADA DDS 568748 1322921
88.P-7 DIV.CA June 8, 1988 October 12, 1993
- -------------------------------------------------------------------------------------------------------
COLUMBIA DDS 263611 22484
86.P-7 .CO December 5, 1989 April 27, 1990
- -------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 47
Docket Family: P-7
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLUMBIA DDS 287287 24152
88.P-7 .CO June 5, 1988 September 8, 1989 July 6, 1993
- -----------------------------------------------------------------------------
EPO DDS 86116547.0 225556
86.P-7 .EP November 28, 1988 June 16, 1987 January 23, 1992
- -----------------------------------------------------------------------------
SPAIN DDS 6861521 8801521
88.P-7 .ES May 18, 1986 May 18, 1996
- -----------------------------------------------------------------------------
JAPAN DDS 293319/1986 1964597
86.P-7 .JP December 9, 1986 December 7, 1984 August 25, 1996
- -----------------------------------------------------------------------------
SOUTH KOREA DDS 10126/86 3/25/94 76691
86.P-7 .KR November 28, 1984 April 21, 1994
- -----------------------------------------------------------------------------
SOUTH KOREA DDS 6772/88 107098
88.P-7 DIV.KR June 4, 1986 August 17, 1994
- -----------------------------------------------------------------------------
MEXICO DDS 4602 171173
86.P-7 .MX December 9, 1986 October 8, 1993
- -----------------------------------------------------------------------------
MEXICO DDS 11766 175067
88.P-7 DIV.MX June 3, 1988 July 4, 1994
- -----------------------------------------------------------------------------
TAIWAN DDS 75105482 30365
86.P-7 .TI November 18, 1986 October 1, 1990
- -----------------------------------------------------------------------------
UNITED STATES DDS 807,234 4,731,926
85,P-7 .US December 10, 1985 March 22, 1988
- -----------------------------------------------------------------------------
UNITED STATES DDS 58,527 4,083,457
87.P-7 C.US June 6, 1987 November 28, 1989
- -----------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 48
DOCKET FAMILY: P-7
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
UNITED STATES 105,869 4,856,188
87.P-7 C1.US DDS OCTOBER 7, 1997 AUGUST 15, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES 169,385 4,665,582
88.P-7 C2.US DDS MARCH 17, 1998 SEPTEMBER 12, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES 380,196 5,167,617
89.P-7 C3.US DDS JULY 14, 1992 DECEMBER 1, 1992
- ------------------------------------------------------------------------------------------------------
UNITED STATES 949,721 5,358,483
92.P-7 C4.US DDS SEPTEMBER 23, 1992 OCTOBER 25, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(8) FRANCE, GERMANY, GREAT BRITAIN, ITALY, SWEDEN, SWITZERLAND & LIECHTENSTEIN
PANODERM ISSUED PATENTS
INTELLECTUAL PROPERTY DEPARTMENT MARCH 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:39:06 P.M.
<PAGE> 49
DOCKET FAMILY: P-9
[ELAN LOGO]
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA 75633/87 586382
87.P-9 .AU DDS JULY 14, 1987 JULY 14, 1987
- ----------------------------------------------------------------------------------------------------------------------------------
CANADA 540624-2 1274738
87.P-9 .CA DDS JUNE 25, 1987 OCTOBER 2, 1990
- ----------------------------------------------------------------------------------------------------------------------------------
EPO 87110049.1 254,166 254166
87.P-9 .EP (10) DDS JULY 11, 1987 MARCH 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
JAPAN 176935/1987 1922042
87.P-9 .JP DDS JULY 15, 1987 APRIL 7, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
MEXICO 7418 166018
87.P-9 .MX DDS JULY 17, 1987 DECEMBER 16, 1992
- ----------------------------------------------------------------------------------------------------------------------------------
TAIWAN 78103514 38185
87.P-9 .TI DDS JUNE 18, 1987 APRIL 1, 1990
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTELLECTUAL PROPERTY DEPARTMENT MARCH 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:39:08 PM
PANODERM ISSUED PATENTS
<PAGE> 50
DOCKET FAMILY: P-9
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
UNITED STATES 886,151 4,734,090
86.P-9.US DDS July 18, 1986 March 29, 19$$
- --------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Liechtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 51
DOCKET FAMILY: P-10
[ELAN LOGO]
ART-PANODERM
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 10986/88 6097699
86.P-10.AU January 30, 1988 January 29, 1988
- ------------------------------------------------------------------------------------------------------
CANADA DDS 558559 1319608
86.P-10.CA February 10, 1993 JUNE 29, 1993
- ------------------------------------------------------------------------------------------------------
EPO DDS 88101856.8 278473 278473
88.P-10.3P(11) February 9, 1993 August 17, 1992 August 5, 1992
- ------------------------------------------------------------------------------------------------------
MEXICO DDS 10386 168981
86.P-10.MX February 10, 1993 June 16, 1993
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 77100550 32711
88.P-10.TI January 2, 1993 June 1, 1993
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 279,315 4,940,456
88.P-10 C.US December 1, 1990 July 10, 1990
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(11) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Spain, Sweden, Switzerland & Liechtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 52
DOCKET FAMILY: P-11
[ELAN LOGO]
ART-PANODERM
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 10984/88 10,984 608278
88.P-11.AU January 20, 1988 August 11, 1988 January 28, 1988
- ------------------------------------------------------------------------------------------------------
CANADA DDS 558559 1317679
88.P-11.CA February 10, 1993 May 18, 1993
- ------------------------------------------------------------------------------------------------------
EPO DDS 88101857.6 278,474 278474
88.P-11.3P(10) February 9, 1988 August 17, 1988 March 27, 1996
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 26618/1988 1922056
88.P-11.JP February 9, 1988 April 7, 1995
- ------------------------------------------------------------------------------------------------------
MEXICO DDS 10367 165338
88.P-11.MX February 10, 1988 November 8, 1997
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 77100544 32616
88.P-11.TI February 10, 1987 October 7,1989
- ------------------------------------------------------------------------------------------------------
</TABLE>
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 53
DOCKET FAMILY: P-11
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 12,889 4,678,892
87.P-11.US February 10, 1987 November 7, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 430,067 5,032,109
89.P-11 C1.US November 1, 1989 July 16, 1991
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:30:08 PM
<PAGE> 54
DOCKET FAMILY: P-12
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 12667/88 510133
88.P-12.AU March 7, 1988 May 16, 1991 March 7, 1991
- ------------------------------------------------------------------------------------------------------
CANADA DDS 560596 1317522
88.P-12.CA March 4, 1988 May 11, 1993
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 63041/1988 1907603
88.P-12.JP March 16, 1988 December 1, 1993 February 24, 1995
- ------------------------------------------------------------------------------------------------------
MEXICO DDS 10835 173932
88.P-12.MX March 10, 1988 April 11, 1994
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 77101547 35925
88.P-12.TI March 10, 1988 November 3, 1989 December 21, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 453,045 5,163,899
89.P-12 C1.US December 12, 1989 November 17, 1992
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 55
DOCKET FAMILY: P-13
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 18125/88 615188
88.P-13.AU May 13, 1988 May 13, 1988
- ------------------------------------------------------------------------------------------------------
CANADA DDS 587175 1299457
88.P-13.CA May 10, 1989 April 28, 1992
- ------------------------------------------------------------------------------------------------------
EPO DDS 86108314.1 292,930 292930
88.P-13.EP(12) May 25, 1988 November 30, 1988 November 2, 1995
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 128136/1988 1922069
88.P-13.JP May 25, 1989 April 7, 1995
- ------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 6294/88 107097
88.P-13.KR May 27, 1988 August 17, 1996
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 79202278 81218
88.P-13.TI May 16, 1989 February 11, 1991 February 11, 1991
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 56
DOCKET FAMILY: P-13
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 438,118 5,013,293
89.P-13 C2.US NOVEMBER 13, 1988 MAY 7, 1991
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 598,803 5,312,325
90.P-13 C3.US OCTOBER 4, 1990 MAY 17, 1994
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 864,544 5,326,454
92.P-13 C5.US APRIL 7, 1992 JULY 12, 1994
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 864,645 5,336,168
92.P-13 C4.US April 7, 1992 AUGUST 9, 1994
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 08/204,784 5,372,168
94.P-13 C6.US MARCH 2, 1994 DECEMBER 13, 1994
- -------------------------------------------------------------------------------------------------------
</TABLE>
EP(12) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Spain, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 57
DOCKET FAMILY: P-15
[ELAN LOGO] ART = OTHER
*
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 234,258 4,900,414
88.P-15.US AUGUST 19, 1988 FEBRUARY 13, 1990
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 58
DOCKET FAMILY: P-16
[ELAN LOGO] Art = Panoderm
*
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISRAEL DDS 100794 100794
92.P-18.IL JANUARY 28, 1992 MAY 1, 1996
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 287,348 5,088,977
88.P-18.US DECEMBER 27, 1989 FEBRUARY 16, 1992
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 823,686 5,328,453
92.P-16.US FEBRUARY 12, 1992 JULY 12, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 59
Docket Family: P-17
[ELAN LOGO]
ART=PANODERM
****
<TABLE>
<CAPTION>
Country/ Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Issue Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 349,996 5,135,478
89.P-17 .US May 10, 1989 August 4, 1992
UNITED STATES DDS 08/023,463 5,328,452
93.P-17 C1.US February 25, 1993 July 12, 1994
</TABLE>
<PAGE> 60
[ELAN LOGO]
APPENDIX D
IOMED CURRENT PRODUCT
<PAGE> 1
EXHIBIT 10.10
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION.
LICENSE AGREEMENT
THIS AGREEMENT is made upon the 27th day of December, 1996 and shall be
effective as of January 1, 1997, by and between IOMED, INC., a Utah corporation
("Iomed"), and FILLAUER, INC., a Delaware corporation (the "Licensee"). Iomed
and the Licensee are referred to herein individually as a "Party," and
collectively as the "Parties".
RECITALS:
A. On the effective date of that certain Asset Acquisition Agreement
between the Parties, of even date herewith (the "Purchase Agreement"), the
Licensee has purchased from Iomed certain assets of Iomed's Motion Control
Division ("Motion Control").
B. Iomed is the exclusive licensee or the owner of certain patented and
unpatented technology, trade secrets, trademarks and trade names which are
utilized by Motion Control in connection with its business of the manufacture
and sale of certain prosthetic devices (the "Business").
C. The Purchase Agreement contemplates that Iomed will grant to the
Licensee an exclusive license to such technology, trademarks and trade names,
in order to permit the Licensee to continue to operate the Business.
D. The Parties desire to enter into this Agreement in order to fulfill the
requirements of the Purchase Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and agreements set forth herein, together with other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
160812.1
<PAGE> 2
1. LICENSES.
(a) On the effective date of this Agreement, Iomed herewith grants to the
Licensee an exclusive world-wide, royalty bearing sublicense in and to the
rights of Iomed to utilize the United States Letters Patent identified on
Exhibit "A" hereto (which is incorporated herein by reference), for the use,
manufacture and sale of those prosthetic devices described on Exhibit "B"
hereto (which is incorporated herein by reference), as granted to Iomed by that
certain License Agreement, dated October 1, 1992 (the "University License"),
between Iomed and the University of Utah Research Foundation. The United
States Letters Patent described on Exhibit "A" hereto are referred to herein as
the "University Patents," the products described on Exhibit "B" hereto,
together with any improvements or additions thereto developed by the Licensee
or its "Sublicensees" (as hereinafter defined) after the effective date of this
Agreement, are referred to herein as the "University Products," and the
sublicense granted by this paragraph 1(a) is referred to herein as the
"Sublicense." The Sublicense shall be exclusive even as to Iomed; provided,
however, that the Licensee acknowledges that the University License reserves to
the University of Utah Research Foundation the right to utilize the University
Patents for educational and research purposes at the University of Utah. In no
event shall any use of the University Patents by the University of Utah
Research Foundation be deemed or construed to constitute a breach of this
Agreement by Iomed.
(b) On the effective date of this Agreement, Iomed grants to the Licensee
an exclusive, world-wide, fee-bearing license (the "License") in and to all
patented and unpatented technology, trademarks, tradenames, know-how and trade
secrets owned or licensed by Iomed and which have been employed by Motion
Control in its conduct of the
2
160812.1
<PAGE> 3
Business, for the purpose of enabling the Licensee to develop, manufacture,
market and sell those products described on Exhibit "C" hereto (which is
incorporated herein by reference), together with any improvements or additions
thereto developed by the Licensee or its Sublicensees after the date of this
Agreement (collectively the "Iomed Products"). Such Iomed technology (the
"Iomed Technology") is more particularly described on Exhibit "D" hereto, which
is incorporated herein by reference. The License shall be exclusive even as to
Iomed.
(c) Pursuant to the Sublicense and the License, the Licensee shall have
the right to grant further sublicenses in and to the University Patents and the
Iomed Technology to persons or entities owned by, or under common control with,
the Licensee (collectively "Sublicensees"). Otherwise, the Licensee may not
sublicense, sell, assign or transfer the Sublicense or the License without the
prior written consent of Iomed. No Sublicensee shall have the right to further
sublicense its rights under either the University Patents or the Iomed
Technology.
2. ROYALTY AND LICENSE FEE.
(a) In consideration of the grant of the Sublicense, the Licensee shall pay
to Iomed an earned royalty of one and one-half percent (1.5%) (the "Royalty") of
all "Net Sales Proceeds (as hereinafter defined) received by the Licensee or its
Sublicensees from all sales of the University Products which are made between
the effective date of this Agreement and September 30, 2007 (the "Royalty
Period"). Following the Royalty Period, no royalties, fees or other payments
shall be due Iomed as the result of or in connection with the sale by the
Licensee or any of its Sublicensees, of the University Products or any
3
160812.1
<PAGE> 4
other products which incorporate or utilize any of the technology which is the
subject of the University Patents or which is otherwise covered by the
Sublicense.
(b) As consideration for the License, the Licensee shall pay to Iomed, in
lieu of any royalty or other payment, a license fee (the "License Fee") *****
************************************************************* received by the
Licensor, or its Sublicensees, from all sales of Iomed Products which are made
between the effective date of this Agreement and January 1, 2004 (the "Fee
Period"). Following the Fee Period, no license fee or other payment (other
than the Royalty specified in paragraph 2(a) hereof to the extent applicable)
shall be due or payable to Iomed by the Licensee or any of its Sublicensees as
a result of or in connection with the manufacture or sale of the Iomed Products
or any other product which incorporates any of the Iomed Technology.
(c) As used in this Agreement, the term "Net Sales Proceeds" shall mean
***********************************************************************
****************************************************************************
***********************************************************************
****************************************************************************
************************************************************************
*********************************************************************
********************************************************
(d) In the event that a University Product or an Iomed Product is sold by
the Licensee or by one of its Sublicensees to a person, firm or entity which is
owned or controlled by or is under common control with the Licensee or such
Sublicensee, then the Royalty or the License Fee, as appropriate, which shall
be due and payable to Iomed as the result of such sale shall be calculated on
4
160812.1
<PAGE> 5
***************************************************************************
****************************, or (ii) **************************************
*************************************************************************
***************************************************************.
3. PAYMENT OF ROYALTY AND LICENSE FEE.
(a) The Royalty and the License Fee shall be paid to Iomed by the Licensee
*********. Payment of the Royalty and License Fee shall be made within *******
of the final day of each **************** during the Royalty Period or the
License Fee Period, as appropriate. Each such payment shall be accompanied by
a report, certified by the Chief Financial Officer of the Licensee setting
forth the total number of each of the University Products and the Iomed
Products sold by the Licensee or its Sublicensees during the ****************
in question, together with a statement as to the manner in which the Net Sales
Proceeds from such sales was calculated.
(b) All Royalty and License Fee payments shall be made in United States
Dollars. Any currency exchange adjustments required by reason of the sale of
the University Products or the Iomed Products outside the United States shall
be made as of the last business day of the **************** during which the
Royalty or License Fee was earned, and shall be based upon the exchange rate
for the currency in question quoted by The Wall Street Journal on the last
business day of such calendar quarter.
(c) Notwithstanding any provision of this Agreement to the contrary, in
the event that, on any of the first five anniversary dates of the effective
date of this Agreement, Iomed shall not have received, during the immediately
proceeding twelve-month period, License Fees in the amount of at least ****
********, the Licensee shall pay to Iomed,
5
160812.1
<PAGE> 6
within 30 days of such anniversary date, the difference between *************
and the amount of the License Fees actually received by Iomed during such
twelve-month period.
4. RECORDS AND AUDIT RIGHTS.
(a) The Licensee shall keep and maintain, and shall cause and require each
of its Sublicensees to keep and maintain, accurate books and records concerning
the manufacture and sale of the University Products and the Iomed Products,
including purchase orders, shipping invoices, records of returned goods, and
records detailing the costs incurred by the Licensee or its Sublicensees in
making such sales and all payments received by the Licensee and the
Sublicensees as a result of such sales. Such books and records shall be
sufficiently detailed to enable to Licensee to calculate, in accordance with
generally accepted accounting principles, the Net Sales Proceeds received by
the Licensee and the Sublicensees from their sale of the University Products
and the Iomed Products, and to determine the amount of the required Royalty and
License Fee payments. Iomed shall have access to and the right, upon
reasonable notice, to inspect and audit such books and records in order to
verify the correctness of the Royalty and License Fees paid by the Licensee.
Any such audit shall be conducted by an accounting firm selected by Iomed.
(b) If Iomed causes the books and records of the Licensee or of any of the
Sublicensees to be audited, and such audit establishes that the Licensee did
not pay to Iomed the full amount of the Royalty or License Fee actually due for
the period covered by such audit, the Licensee shall immediately pay to Iomed
all additional amounts due, plus interest thereon at the rate of *******
**********************************************************. If such audit
establishes that the Licensee has underpaid the Royalty or License
6
160812.1
<PAGE> 7
Fee by ***************** or more during the period covered by the audit, the
Licensee shall reimburse Iomed, upon demand, for all costs and expenses of such
audit.
5. PRODUCT LIABILITY INDEMNIFICATION. Iomed does not make or give, and
hereby specifically disclaims, any warranty, express or implied, concerning the
University Products or the Iomed Products, including but not limited to the
warranties of merchantability or fitness for a particular purpose. As to all
University Products and Iomed Products that are sold or distributed on or after
the effective date of this Agreement, the Licensee hereby agrees to indemnify
and hold Iomed harmless from and against, and hereby assumes liability for the
payment of, any loss, liability or damage and for all costs and expenses,
(including reasonable costs of investigation and reasonable attorneys,
accountants and expert witness fees) of whatever kind and type that may be
imposed upon, suffered or incurred by or asserted against Iomed as a
consequence of or in connection with any liability from or relating to the use
of the University Products or the Iomed Products by customers of the Licensee
or its Sublicensees, or by the ultimate end-users of such University Products
and Iomed Products.
6. PATENT AND TRADEMARK MATTERS.
(a) The Licensee shall diligently prosecute and maintain all of the
patents, trademarks and tradenames specified on Exhibits "A" and "D" hereto
(collectively, the "Patents and Marks") using counsel of its choice and at its
sole cost and expense. If, for any reason, the Licensee elects to abandon the
prosecution, maintenance or reinstatement of any of the Patents and Marks, it
will promptly notify Iomed of such election and, in any event, shall provide
such notice in sufficient time to allow Iomed to comply with its obligations
under Article 9 of the University License.
7
160812.1
<PAGE> 8
(b) If either Party learns that any claim or suit (an "Action") has been
made or brought for patent, trademark or other infringement as the result of
the manufacture or sale of the University Products or the Iomed Products, such
Party shall promptly notify the other Party of such action. The Licensee shall
have the first right, but not the obligation, to defend and to control the
defense of such Action, at its expense. Iomed will assist the Licensee,
without cost to the Licensee, in the defense of such Action by providing
information and fact witnesses to the extent reasonably available. Iomed shall
have the right to be represented in such Action by its own legal counsel, at
its own expense, provided that such legal counsel will act only in an advisory
capacity. If Licensee elects not to defend such claim, it shall so notify
Iomed, in writing, and Iomed shall, thereafter, have the right and option, but
not the obligation, to defend and control the defense of such Action or the
settlement thereof.
(c) If either Party learns of any infringement of the Patents and Marks by
a third party, or of another improper or illegal use of the technology covered
by the Sublicense or the License, such Party shall promptly notify the other of
the alleged infringement, in writing. The Licensee shall have the first right
to settle with or institute legal action against the alleged infringer. Any
monies or other benefits which are recovered through such settlement or legal
action shall be retained by the Licensee. If the Licensee does not initiate
settlement or legal action within 60 days after its receipt of notice of the
alleged infringement, then Iomed shall have the right to settle with or
institute legal action against the alleged infringer and to retain all monies
or other benefits which are recovered through such action.
8
160812.1
<PAGE> 9
7. REPRESENTATIONS AND WARRANTIES OF IOMED. Iomed represents and warrants
to the Licensee as follows:
(a) Iomed is a corporation duly organized, validly existing and in good
standing under the laws of the State of Utah, and has the full legal right and
corporate power and authority to enter into this Agreement and to perform all
of its obligations under this Agreement.
(b) Iomed has taken all corporate action which is necessary, required or
appropriate to authorize and enable it to enter into and perform this
Agreement.
(c) This Agreement, when executed and delivered by both of the Parties,
will constitute a valid and binding legal obligation of Iomed.
(d) The University License is in full force and effect upon the effective
date of this Agreement and, to the knowledge of Iomed, neither the grant of the
Sublicense nor the utilization of the Sublicense by the Licensee in the manner
contemplated herein will result in any breach or violation of the University
License.
(e) No person or entity has made any claims or threatened that Iomed's use
and application of the University Patents or the Iomed Technology in connection
with the Business is in violation or infringement of any patent, patent
license, trade name, trademark, servicemark, know-how, formula or other
proprietary or trade rights of such third party.
(f) To the best knowledge of Iomed, neither the University Patents nor the
Iomed Technology infringe any patent rights, copyrights, trade secret rights or
other proprietary rights of any third party.
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8. REPRESENTATIONS AND WARRANTIES OF THE LICENSEE. The Licensee
represents and warrants to Iomed as follows:
(a) The Licensee is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the full legal
right and corporate power and authority to enter into this Agreement and to
perform all of its obligations under this Agreement.
(b) The Licensee has taken all corporate action which is necessary,
required or appropriate to authorize or enable it to enter into and perform
this Agreement.
(c) This Agreement, when executed and delivered by both of the Parties,
will constitute a valid and binding legal obligation of the Licensee.
(d) Prior to its execution and delivery of this Agreement, the Licensee
received from Iomed, and has had the opportunity to review, a copy of the
University License.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Iomed, as set forth in paragraph 7 hereof, and the
representations and warranties of the Licensee, as set forth in paragraph 8
hereof, are true, correct and accurate as of the effective date of this
Agreement, and shall survive the execution of this Agreement for a period of
one year.
10. ADDITIONAL COVENANTS OF IOMED.
(a) During the entirety of the Royalty Period, Iomed will carry out all of
its obligations under the University License in a timely fashion and shall
otherwise take such commercially reasonable actions as may be necessary to
maintain the University License in full force and effect.
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<PAGE> 11
(b) Iomed shall hold the Licensee and its Sublicensees harmless from and
against any and all claims of or liabilities to the University of Utah Research
Foundation for amounts due under the University License as a result of or in
connection with the manufacture and sale of the University Products by the
Licensee in accordance with the terms of this Agreement.
11. ADDITIONAL COVENANTS OF THE LICENSEE.
(a) Within five days of the effective date of the grant of any sublicense
under the Sublicense or the License, the Licensee shall provide Iomed with
written notice of such grant. Such written notice shall include a complete
copy of the sublicense in question, and a statement as to the nature of the
relationship between the Licensee and the Sublicensee. Each such sublicense
shall require the Sublicensee to maintain the books and records called for by
paragraph 4 hereof, shall authorize Iomed to inspect and audit such books and
records in the manner set forth in paragraph 4 hereof, and shall obligate the
Sublicensee to maintain the confidentiality of the Iomed Technology.
(b) The Licensee shall not take any action under the Sublicense or the
License, or otherwise take or omit to take any action, which could reasonably
be expected to result in the breach or violation of the University License.
(c) Prior to the end of the Fee Period, the Licensee shall not merge or
consolidate with any other person or sell all or substantially all of its
assets to any person if (i) the resulting, surviving transferee entity fails to
assume all obligations of Licensee under this Agreement by operation of law or
pursuant to an agreement reasonably satisfactory to Iomed and (ii) the
creditworthiness of the resulting, surviving or transferee
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<PAGE> 12
entity (determined by Iomed in a commercially reasonable manner) is materially
weaker than that of the Licensee immediately prior to such transaction.
(d) Until the expiration of the Fee Period, the Licensee shall not declare
or pay any dividend on any of its issued or outstanding equity securities
unless, prior to such declaration or payment, it shall have either (i) paid to
Iomed, since the immediately prior anniversary of the effective date of this
Agreement, License Fees equal to at least *************, or (ii) created and
set aside a reserve fund sufficient to enable the Licensee to pay to Iomed all
amounts required by paragraph 3(c) hereof for the ****** period during which
such dividend is declared or paid.
(e) The Licensee shall use reasonable efforts to manufacture and sell
University Products and Iomed Products, and to otherwise commercially develop
and exploit the technology covered by the Sublicense and the License.
12. TERMINATION.
(a) Licensee may, at its option, terminate this Agreement if any
representation or warranty of Iomed contained in this Agreement shall prove to
be false or inaccurate and a claim therefore is asserted within the survival
period provided by paragraph 9 hereof, or if Iomed shall be in material breach
of any of the other provisions of this Agreement, which breach shall continue
uncured for a period of 30 days after written notice thereof by the Licensee.
(b) Iomed may, at its option, terminate this Agreement for any of the
following reasons:
(i) If any of the representations or warranties of the Licensee contained
in this Agreement shall prove to be inaccurate or false and a claim therefore
is
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asserted within the survival period provided in paragraph 9 hereof, or if the
Licensee shall be in material breach of any of the other provisions of this
Agreement, including but not limited to its obligations to pay the Royalty and
the Licensee Fee in accordance with the provisions of paragraphs 2 and 3
hereof, which breach shall continue uncured for a period of 30 days after
written notice thereof by Iomed.
(ii) If the Licensee shall be adjudicated bankrupt or insolvent by any
court of competent jurisdiction or shall be voluntarily or involuntarily placed
in reorganization under any bankruptcy law or shall make an assignment for the
benefit of creditors or shall consent to the appointment of a receiver,
liquidator or trustee for itself in any court whatsoever, seeking to take
advantage of any bankruptcy or insolvency act, or shall admit in writing its
inability to pay its debts as they mature.
13. EFFECT OF TERMINATION.
(a) Upon the termination of this Agreement, by either Party, pursuant to
the provisions of paragraph 12 hereof, any obligation which accrued prior to
the effective date of such termination shall continue in full force and effect
and shall not be terminated, reduced or otherwise altered as the result of or
in connection with such termination. Additionally, the rights and obligations
of the Parties set forth in paragraphs 5, 10(b) and 14 hereof shall survive the
termination of this Agreement.
(b) Upon the termination of this Agreement, by either Party, pursuant to
paragraph 12 hereof, the right of the Licensee and of its Sublicensees to
manufacture or sell the University Products, the Iomed Products or any other
products which incorporate or are based upon any of the technology covered by
the Sublicense or the License shall completely terminate. Following such
termination the Licensee shall, upon the written request of
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<PAGE> 14
Iomed, assign (and cause each Sublicensee to similarly assign) to Iomed all
improvements to the University Products and to the Iomed Products which are
developed by the Licensee and its Sublicensees after the effective date of this
Agreement.
14. CONFIDENTIALITY.
(a) The Licensee acknowledges that the Iomed Technology (the "Confidential
Information") constitutes the valuable, unique and proprietary asset of Iomed;
provided, however, that the term "Confidential Information", as used herein,
shall not include any information or data which (i) is in or becomes a part of
the public domain by any means other than the Licensee's breach of its
obligations hereunder or (ii) is rightfully known to the Licensee at the time
of disclosure by Iomed, as demonstrated by the contemporaneous written records
of the Licensee, or (iii) is, at any time, disclosed to the Licensee by a third
party who has received and disclosed such information without the breach of any
obligation of confidentiality to Iomed or to any third party. For purposes of
this paragraph 14, information shall not be deemed to be part of the public
domain or within the Licensee's knowledge merely because it may be embraced in
a more general disclosure, or because it may be derived from combinations of
information generally available to the public or otherwise within the
Licensee's knowledge.
(b) The Licensee shall maintain all of the Confidential Information in
confidence and shall not, except as specifically permitted herein, disclose the
same to any third party (including without limitation affiliates of the
Licensee who are not Sublicensees) unless required to do so by court order or
by law, in which case the Licensee shall notify Iomed, in writing, prior to
making such disclosure and shall cooperate with Iomed to preserve and protect
the confidentiality of the Confidential Information to the fullest extent
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<PAGE> 15
possible. The Confidential Information may be disclosed by the Licensee to
those of its employees who need to know the same in order to enable the
Licensee to utilize the Sublicense and the License, and to its permitted
Sublicensees; provided that each such person and entity is advised of the
obligations of confidentiality contained herein. Any breach of the provisions
of this Paragraph 14(b) by such employees or Sublicensees shall be deemed, for
all purposes, to constitute a breach hereof by the Licensee.
15. RELATIONSHIP OF THE PARTIES. This Agreement shall not be deemed or
construed to create between Iomed and the Licensee the relationship of
principal and agent, joint venturers, co-partners, employer or employee, master
or servant, or any other similar relationship. Neither Party shall have the
right or authority to bind or to act for or on behalf of the other Party.
Additionally, neither Party shall be liable to any third party, in any way, for
any engagement, obligation, contract, representation or transaction, or for any
negligent act or omission to act of the other Party, except as otherwise
specifically provided in this Agreement.
16. NOTICES. All notices, requests, consents, approvals and other
communications given pursuant to this Agreement shall be deemed given only if
reduced to writing and delivered personally, by United States mail with postage
prepaid and return receipt requested, by overnight delivery service, or by
telecopier (FAX) transmission, to the appropriate Party as set forth below:
Iomed: Iomed, Inc.
3385 West 1820 South
Salt Lake City, Utah 84104
Attn: President
FAX: (801) 972-9072
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<PAGE> 16
The Licensee: Fillauer, Inc.
2710 Amnicola Highway
Chattanooga, Tennessee 37406-0189
Attn: President
FAX: (423) 624-1402
Either Party may change its address by giving notice of such change in the
manner set forth herein. Any notice given to either Party by mail or by
overnight courier shall be deemed delivered two business days after such notice
is deposited in the United States mail or placed in the possession of a
nationally recognized overnight courier service, as appropriate, and any notice
given by FAX transmission shall be deemed delivered when sent by confirmed
transmission prior to 6 p.m. Eastern time on a business day.
17. REMEDIES. Should default occur in the performance of any obligation
set forth in this Agreement, the non-defaulting Party shall be entitled to
obtain an injunction compelling the specific performance of the obligations of
this Agreement, in addition to any action for damages or for other relief as
may be available to the non-defaulting Party at law or in equity. The
defaulting Party shall, in addition to any damages which may result from such
default, pay to the non-defaulting Party the costs, including reasonable
attorneys' fees, incurred by the non-defaulting Party in causing the cure of
such default or in otherwise enforcing its rights under this Agreement.
18. WAIVER. Any waiver by either Party of a breach of any term or
condition of this Agreement shall not constitute a waiver of any subsequent
breach of the same or any other term or condition of this Agreement.
19. ENTIRE AGREEMENT. With the exception of the Purchase Agreement and
the agreements contemplated thereby, this Agreement constitutes the entire
agreement and understanding between the Parties in regard to the subject matter
hereof and supersedes
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<PAGE> 17
any other understanding between the Parties, whether written or oral, as to
such subject matter. This Agreement may not be modified or amended orally, but
only by an agreement, in writing, executed by both of the Parties.
20. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Utah, without giving effect to the
choice of law rules thereof.
21. RECORDATION. The Licensee may record the grant of the License and the
Sublicense, as provided in this Agreement, with the United States Patent
Office, and Iomed shall execute and deliver such documents as may be reasonably
necessary to effect such recordation.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have caused this License Agreement to be
executed by their duly authorized representatives as of the date first herein
written.
IOMED:
IOMED, INC.
By:
Its:
THE LICENSEE:
FILLAUER, INC.
By:
Its:
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<PAGE> 18
EXHIBIT "A"
University Patents
<PAGE> 19
EXHIBIT A
MOTION CONTROL
Division of Iomed, Inc.
UNITED STATES LETTERS PATENT
(UNIVERSITY PATENTS)
****
<PAGE> 20
EXHIBIT "B"
UNIVERSITY PRODUCTS
<PAGE> 21
EXHIBIT B
MOTION CONTROL
Division of Iomed, Inc.
UNIVERSITY PRODUCTS
****
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
August 4, 1997, except for Note 15 as to which the date is November 7, 1997,
with respect to the consolidated financial statements included in Amendment No.
5 to the Registration Statement (Form S-1 No. 333-37159) and related prospectus
of IOMED, Inc. for the registration of 1,700,000 shares of its common stock.
/s/ Ernst & Young LLP
Salt Lake City, Utah
December 18, 1997
